Stocks rise as oil drops on OPEC output report

[March 08, 2011]  LONDON (AP) -- Stocks advanced Tuesday, helped by falling oil prices following reports the OPEC oil cartel will boost supply, though concerns about the escalating violence in Libya kept traders on edge.

Oil prices have dropped back from Monday's 30-month highs in part due to a Financial Times report that countries like Kuwait and The United Arab Emirates will join Saudi Arabia in raising output to make up for a drop in Libya. Libya produces nearly 2 percent of the world's daily oil.

That has urged investors to buy into stock markets, as greater oil supply should ease prices, reducing fears that high energy costs will hurt economic growth.

"Oil is pushing lower this morning on the combination of rumours that Gadhafi may be looking for a trial free exit from Libyan leadership and on the news that some of the OPEC cartel will follow Saudi in increasing supply," said Jane Foley, an analyst at Rabobank International. "On the back of the softer oil prices, safe haven demand has relented."

By midmorning London time, the benchmark oil contract on the New York Mercantile Exchange was down $1.11 at $104.33 a barrel. That's over $2 lower from the rate hit Monday. Brent crude in London was down 46 cents at $114.58 a barrel, down around $4 on Monday's high.

Over the past few weeks, oil prices and stocks markets have mostly moved in opposite directions. Stocks are effectively a leading indicator of perceptions for economic expansion and the vagaries of the oil price affect perceptions of the state of the global recovery.

When investors look for safe havens to park their cash, assets like gold or the Swiss franc are in demand. When risk appetite increases, stocks get a lift.

In Europe, the FTSE 100 index of leading British shares was up 0.2 percent at 5,984 while France's CAC-40 rose 0.2 percent to 4,000. Germany's DAX was 0.4 percent higher at 7,192.

Wall Street was poised for a solid advance at the open -- Dow futures were up 45 points at 12,123 while the broader Standard & Poor's 500 futures rose 6.7 points to 1,315.50.

Analysts reckon that developments in North Africa and the Middle East will continue to be the main point of interest in the markets for a while yet. The big concern is that if countries like Saudi Arabia experience an uprising on the scale of those already seen in Tunisia, Egypt and Libya, then oil could rise as high as $200 a barrel.

That would be a nightmare scenario for the economy, as it would stoke inflationary pressures and at the same time dampen growth.

"Markets remain very much at the mercy of oil prices," said Terry Pratt, a trader at IG Markets.

In the currency markets, the euro gave up some recent gains, trading 0.3 percent lower on the day at $1.3922.

Europe's single currency pushed up above $1.40 Monday in the wake of expectations that the European Central Bank will lift interest rates next month. That perception stands in marked contrast with the U.S. Federal Reserve, which is not expected to tighten policy anytime soon.

Earlier in Asia, Japan's benchmark 225 stock average added 0.2 percent to 10,525.19, while Hong Kong's Hang Seng rose 1.7 percent to 23,711.70. Mainland Chinese shares edged higher -- the Shanghai benchmark gained 0.1 percent to 2,999.94, while the Shenzhen Composite Index of China's smaller, second exchange added 0.3 percent to 1,307.71.

[Associated Press; By PAN PYLAS]

Pamela Sampson in Bangkok contributed to this report.

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