Iraq unrest drives up oil, shares edge higher

Reuters
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Signage is seen on the London Stock Exchange building in central London on May 21, 2008. REUTERS/Luke MacGregor

By David Gaffen and Herbert Lash

NEW YORK, (Reuters) - Escalating violence in Iraq drove crude oil prices to nine-month highs on Friday while damping the appetite for risk, even as bullish news from the U.S. tech sector lifted shares on Wall Street and helped buoy stocks in global equity markets.

Brent crude edged above $113 a barrel, up more than $4 this week, on concerns that an insurgency in Iraq could trigger civil war and eventually crimp oil exports.

Iraq's most senior Shi'ite cleric urged his followers to take up arms to defend themselves against advancing Sunni militants, escalating a conflict that threatens civil war and a possible break-up of the country.

"The market in general is trying to assess the risks on Iraq," said Olivier Jakob at Petromatrix consultancy.

The dollar strengthened against a basket of major currencies for the first time in three sessions as the Iraqi violence triggered a safety bid for the U.S. unit. Higher U.S. bond yields also underpinned the move.

European stocks closed slightly lower but shares on Wall Street rose after Intel Corp (INTC.O) raised its full-year revenue outlook, citing stronger-than-expected demand for personal computers used by businesses.

Intel added the most gains to the three major indices on Wall Street, and its shares rose 6.8 percent at $29.87.

MSCI's all-country world equity index rose 0.03 percent, lifted by Wall Street and Canada's Bay Street (.GSPTSE).

The FTSEurofirst 300 (.FTEU3) index of top European shares closed down 0.2 percent at 1,389.83, moving further away from this week's 6-1/2-year high.

The Dow Jones industrial average (.DJI) closed up 41.55 points, or 0.25 percent, to 16,775.74. The S&P 500 (.SPX) gained 6.05 points, or 0.31 percent, to 1,936.16 and the Nasdaq Composite (.IXIC) added 13.02 points, or 0.3 percent, to 4,310.653.

For the week, the Dow fell 0.9 percent, the S&P lost 0.7 pct and the Nasdaq slipped 0.25 percent.

"The market isn't cheap, but it isn't crazy expensive and the sectors that are looking better are cyclical in nature," said Michael Mullaney, chief investment officer at Fiduciary Trust Co in Boston. "Tech has been doing well from a price return standpoint, and that should continue."

Brent (LCOc1) settled 39 cents higher at $113.41 per barrel, off a peak of $114.69, its highest since September.

U.S. crude (CLc1) rose 38 cents to settle at $106.91, off a high of $107.68 hit earlier, also a nine-month peak.

The U.S. dollar index (.DXY), which measures the dollar against a basket of six major currencies, rose 0.07 percent to 80.634. The euro slid 0.10 percent against the dollar to $1.3538, while the dollar rose 0.29 percent against the yen to 101.99.

Sterling surged after the Bank of England hinted at an interest rate rise this year.

Despite the decline in riskier assets, benchmark U.S. bond prices fell, pushing yields higher. U.S. 10-year notes fell 5/32 in price to yield 2.6060 percent.

(Additional reporting by Anirban Nag, Julia Payne and Christopher Johnson; Editing by Nick Zieminski and Dan Grebler)

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