Rally in oil drives up stocks; euro rebounds

NEW YORK: Oil jumped more than 2 percent on Tuesday, driving world stocks up, after Goldman Sachs forecast strong fuel demand growth and Germany's business sentiment in came above expectations, easing concerns about the pace of the global economic recovery.

The euro also rebounded on the German data, although sentiment remained fragile due to fears of an imminent debt default by Greece.

Goldman Sachs, one of the most influential institutions in the global oil spot market, raised its 12-month price forecast for Brent crude to $130 a barrel from $107 and increased its end-2012 forecast to $140 a barrel from $120, citing global economic growth and tight OPEC spare capacity.

US crude and Brent futures jumped more than 2 percent on the news. They were both trading higher some 1.8 percent later, at $99.55 and $112.13 per barrel, respectively.

Energy shares rose with the higher oil prices and provided a small boost to world stocks, driving the MSCI All-Country World index 0.4 percent higher, a day after dropping 1.8 percent.

On Wall Street, stocks struggled to clawed out gains, despite losses in technology and industrial shares.

The Dow Jones industrial average was up 5.23 points, or 0.04 percent, at 12,386.49. The Standard & Poor's 500 Index was up 2.55 points, or 0.19 percent, at 1,319.92. The Nasdaq Composite Index was down 0.80 point, or 0.03 percent, at 2,758.10.

The market closed at its lowest in a month on Monday.

‘The move today is as much of a reaction to yesterday as anything else,’ said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia. ‘It's especially helpful to have energy higher today, since that was one of the worst performing sectors yesterday.’

European shares -- still in the red for the year -- edged higher, with the FTSEurofirst 300 index of top shares up 0.19 percent.

EURO RECOVERS

The euro recovered after hitting a two-month low against the dollar on Monday, up 0.4 percent at $1.4103, but gains were contained by lingering concerns about the euro zone debt crisis.

Data showing German business sentiment stabilizing unexpectedly in May helped push the euro briefly back above $1.4100; it had hit a low on Monday of $1.3968.

The European single currency had sold off on Monday following another credit downgrade of Greece, a ratings warning about Italy and a Spanish voter revolt against austerity measures designed to address the country's debt.

The risks faced in Europe were underlined again on Tuesday as Moody's Investors Service said that a Greek debt default would put Portugal and Ireland at risk of multi-notch credit downgrades.

‘A Greek default would be highly destabilizing and would have implications for the credit-worthiness of issuers across Europe,’ Moody's EMEA chief credit officer Alastair Wilson told Reuters.

German government bonds fell as investors cashed in on Monday's rally of core euro zone debt and digested the German business sentiment data that suggested Europe's top economy might retain its strong growth momentum longer than thought.

US Treasury debt prices declined ahead of an auction of new notes and as firmer stocks drew demand away from safe-haven assets. Benchmark 10-year notes were down 3/32 in price, driving their yield up to 3.1396 percent.

Copyright Reuters, 2011