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GLOBAL MARKETS-Oil up on Middle East, equities helped by M&A

Published 04/04/2011, 02:14 PM
Updated 04/04/2011, 02:16 PM
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* M&A activity supports global shares

* Wall Street edges down as S&P hits resistance

* Euro slips back after hitting multi-month highs

* Brent crude hits $120 a barrel on Middle East unrest (Rewrites, updates prices, adds details, quotes)

By Leah Schnurr

NEW YORK, April 4 (Reuters) - Merger and acquisition activity helped global equities eke out mild gains on Monday, while oil rose to 2-1/2-year highs on worries geopolitical risks will hit supply.

The M&A cheer did little for Wall Street with the broad S&P 500 <.SPX> little changed as it encountered levels where selling has clustered in recent sessions.

Expectations of higher euro zone interest rates took the euro briefly to an 11-month high against Japan's yen, but the currency eased back with expectations of an increase already priced in.

Brent crude oil prices rose above $120 a barrel to the highest level since before the collapse of Lehman Brothers and the global financial crisis in September 2008. U.S. crude was choppy after rising to $108.78, the highest intraday price since September 2008.

Libya's continuing conflict and unrest in Yemen could pose threats to supply in the Middle East, while investors expect demand for oil could grow on signs of improvement in the U.S. economy.

"Brent is up on Libya, Yemen unrest and the Nigerian election," said Phil Flynn, analyst at PFGBest Research in Chicago.

"U.S. crude is hesitant because there is still worry that the Federal Reserve might be nearing a rate hike or tighter policy, which would lower liquidity and demand and strengthen the dollar," he added.

World stocks as measured by MSCI <.MIWD00000PUS> were up 0.2 percent, hovering around a one-month high and up nearly 5 percent for the year to date. European shares rose to a three-week closing high.

"Positive sentiment is coming from mergers. We will see more mergers and acquisitions and it is one of the reasons why the stock market is still trading at these higher levels," a London-based equity trader said.

In Europe Belgian chemicals group Solvay launched a bid for French rival Rhodia , driving up Rhodia's shares 48 percent. [ID:nLDE66P0SY]

Vodafone gave back earlier gains to close lower after selling its 44 percent stake in France's second biggest telecom operator SFR to Vivendi . [ID:nLDE73319N]

The FTSEurofirst 300 <.FTEU3> closed up 0.04 percent at 1,142,84 points, the highest close since March 9. Japan's Nikkei <.N225> also closed up 0.1 percent.

On Wall Street, Pfizer Inc rose 0.5 percent to $20.48 after the drugmaker agreed to sell its Capsugel unit, the world's largest maker of hard capsules, to private equity firm KKR & Co for nearly $2.4 billion. For details, see [ID:nN04165993]

But the S&P was slightly lower in the early afternoon, hovering just under 1,333, a level that it has been unable to close above since mid-February.

The S&P recorded its best two-week period since December on Friday and the Dow industrials <.DJI> hit its highest intraday level since June 2008.

"If we make a successful break from here, I think you've got the 1,400 range and I think that's probably likely during the final seasonally favorable push," said Bruce Zaro, chief technical strategist at Delta Global Asset Management in Boston.

The Dow Jones industrial average <.DJI> dipped 2.04 points, or 0.02 percent, to 12,374.68. The Standard & Poor's 500 Index <.SPX> slipped 3.04 points, or 0.23 percent, to 1,329.37. The Nasdaq Composite Index <.IXIC> was off 10.40 points, or 0.37 percent, to 2,779.20.

RATES DRIVE EURO

Economic improvement has cemented expectations that the ECB will raise interest rates Thursday and led to speculation the U.S. Federal Reserve may be getting closer to withdrawing exceptional liquidity. [ID:nLDE7330AC]

A top Federal Reserve official said on Monday that U.S. inflation is likely to remain low for now, but policymakers will keep a close eye on potentially self-fulfilling consumer expectations for higher prices. [ID:nN04244409]

Reflecting expectations of differing rate paths, the euro hit an 11-month high against the yen and touched a five-month peak against the dollar. The euro later slipped back.

The euro briefly popped above 120 yen for the first time since May 2010 and was later at 119.50 yen. It hit a five-month high against the dollar of $1.4269 and was later at $1.4223 .

In commodities, ICE Brent was up $1.50 at $120.20 a barrel. U.S. crude rose 16 cents to $108.08 a barrel. (Reporting by Leah Schnurr; Additional reporting by Edward Krudy and Robert Gibbons in New York, Atul Prakash in London; Editing by Kenneth Barry)

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