Oil jumps on Iran fears; stocks rally halted

Tue Dec 27, 2011 4:38pm EST
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By Walter Brandimarte

NEW YORK (Reuters) - Oil prices jumped more than $1 on Tuesday after Iran threatened to cut off a key oil shipping route through the Strait of Hormuz, while world stocks were little changed as a four-day Wall Street rally stalled.

The euro was stuck near an 11-month low as investors feared thin market liquidity could complicate Italy's plans to raise 8.5 billion euros in capital markets later in the week, renewing pressure on the euro zone.

Trading volumes were low in most markets as not all traders returned to their desks for the shortened week between the Christmas and New Year holidays.

U.S. crude oil prices shot up $1.61 to $101.29 a barrel as traders feared possible disruptions in supplies from the Middle East. Recent strong U.S. economic data also supported prices, analysts said.

Iran, facing possible sanctions by the European Union over its nuclear program, said it would stop flows through the Gulf strait, which transits crude from Saudi Arabia, Iran, the United Arab Emirates, Kuwait and Iraq.

"The geopolitical fear premium with the Iran comments and also the U.S. consumer sentiment rising to an eight-month high make it hard to be short oil during this holiday week," said Phil Flynn, analyst at PFGBest Research in Chicago.

U.S. crude oil futures have been among the top-performing assets in 2011, with gains of more than 10 percent year to date.

U.S. stocks ended little changed as low market liquidity poured cold water on a four-day rally that turned the S&P 500 positive for the year.   Continued...