LONDON: Oil prices rose back above $112 a barrel on Tuesday due to concerns over unrest in the Middle East, though stock markets shrugged off the move, preferring to focus on optimism over the outlook for the US economy.
The upheaval in the Middle East and North Africa helped spot gold to rise about 0.5 percent to $1,417.85 an ounce, up for a third straight session. Gold staged its largest monthly rise in February since last August, as turmoil in the Middle East fed investor demand for perceived safe-haven assets.
But European equities tracked gains on Wall Street overnight and in Asia, with analysts saying markets had turned back to expectations of a strong US recovery and the prospect of monetary tightening there being delayed for some time.
US factory activity is forecast to have expanded again in February. The Institute for Supply Management index due later in the day is expected to show a reading of 61.0, up from 60.8 in January.
This follows data on Monday showing consumer spending growth slowed in January but also painting a bullish picture of the manufacturing sector, with a gauge of factory activity in the country's Midwest hitting a 22-1/2 year high.
"It's very important that the US economy is now showing signs of strength ... and forecasts for this year's GDP are starting to exceed 4 percent," said Heino Ruland, strategist at Ruland Research in Frankfurt.
"This is certainly good news for the world economy."
Figures out of China, however, showed manufacturing growth slowed in February while costs jumped, suggesting monetary tightening was beginning to register but that more would probably be needed to cool inflation due largely to rising oil and food prices.
US crude for delivery in April inched up 0.1 percent to $97.08 per barrel.
The pan-European FTSEurofirst 300 index was last up 0.4 percent, pushing higher for a third consecutive session. The world equities measured by MSCI All-Country World Index added 0.3 percent.
The firmer tone in equities cooled flows into safer-haven government bonds, pushing 10-year Treasury and German debt yields up slightly though losses were limited by lingering nervousness over developments in North Africa and the Middle East.
OIL OFF PEAKS
Crude traded close to $120 per barrel last week, its highest in more than two years, due to concerns that political upheaval in Libya would spread across oil-producing nations in the Middle East. Saudi Arabia has calmed the market with extra supply.
"I would expect that the rise in oil prices we've seen so far, which is more gentle compared to what we saw in the 1970s and '80s, the impact on the economy will be negative but maybe not as negative as we have seen in the past," said Elwin de Groot, market economist at RBC Capital Markets.
"The rise comes against the backdrop of very strong profits in the past quarters, so we need to see bigger events before the market is significantly dented by that. Still, there is always a risk that this will have a bigger impact on the global economy if things worsen." The dollar index, which tracks its performance against a basket of major currencies, hit a 3-1/2 month low of 76.735, before recovering slightly to 76.842.
The euro hovered close to its 2011 high of $1.3862 against the dollar and traders said a catalyst for more gains could come if Federal Reserve chief Ben Bernanke suggests in Tuesday testimony the central bank will continue to run extremely loose monetary policy.
The euro was also supported by expectations of a hawkish European Central Bank message when it meets on Thursday, after the euro zone's growth and inflation forecasts were revised upwards.
In contrast, Bernanke is expected to stay cautious about the economy in the semi-annual testimony before the Senate Banking Committee at 1500 GMT.
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