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Oil gains on Iraqi violence; bonds steady on safety bid

By Herbert Lash

NEW YORK (Reuters) - Oil prices rose on Monday after the Sunni insurgency in Iraq raised concerns over potential disruption to crude supplies, while that violence and renewed tensions in Ukraine drove buying of safe-haven currencies and U.S. Treasury bonds.

While the fighting in Iraq damped global equity markets, merger activity and strong U.S. economic data offset downward pressure on Wall Street, where stocks closed slightly higher.

Investor unease hit the Nikkei early in the day as Tokyo suffered its biggest fall in a month, while European shares were in the red for the third time in four days.

Russian natural gas exporter Gazprom cut supplies to Ukraine after Kiev missed a deadline to pay its gas debts in a dispute that could disrupt supplies to the rest of Europe.

"There was a reasonable flight-to-quality bid overnight with the developments in Iraq and Gazprom, so global equities were under a fair amount of pressure and that gave a bid to longer-dated Treasuries," said Ian Lyngen, senior government bond trader at CRT Capital in Stamford, Connecticut.

MSCI's all-country world equity index edged down 0.04 percent. The FTSEurofirst 300 index of top European shares closed down 0.42 percent at 1,383.95.

The Dow Jones industrial average closed up 5.27 points, or 0.03 percent, at 16,781.01. The S&P 500 rose 1.62 points, or 0.08 percent, to 1,937.78 and the Nasdaq Composite added 10.452 points, or 0.24 percent, to 4,321.105.

Argentina's Merval index fell 8.4 percent after the U.S. Supreme Court declined to hear the country's appeal over its battle with hedge funds that refused to take part in its debt restructurings. The move risks sending Argentina into a fresh sovereign default.

Brent crude for August delivery rose 48 cents to settle at $112.94 a barrel. U.S. oil fell 1 cent to settle at $106.90 a barrel.

The yen and the Swiss franc rose, with the Japanese currency hitting a four-month high against the euro as investors sought safety.

The dollar slipped as traders await clues from the U.S. Federal Reserve on the timing of an interest rate increase amid doubts about the economic recovery.

The dollar fell 0.22 percent to 101.83 yen, while the euro fell to a four-month low against the yen before paring much of its decline. It was last at 138.18 yen.

U.S. Treasuries prices rose as Iraq and Ukraine increased demand for safe-haven bonds. Investors paid Germany and the Netherlands to keep their cash for up to half a year in government tenders as the escalating Iraqi violence fueled flows into top-rated assets.

Benchmark 10-year Treasury notes rose 2/32 in price to yield 2.5970 percent.

(Reporting by Herbert Lash; Additional reporting by Marc Jones in London; Editing by Dan Grebler and Nick Zieminski)

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