Oil eases after Iran threat, Italy gets debt boost

Wed Dec 28, 2011 7:33am EST
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By Mike Peacock and Ikuko Kurahone

LONDON (Reuters) - Crude prices broke a six-day rally on Wednesday after Iran's threat to stop the flow of oil from the Gulf was written off as no more than rhetoric, while a strong short-term Italian debt sale eased stress in European markets.

Tehran said on Tuesday it would stop oil transiting through the Strait of Hormuz if sanctions were imposed on its crude oil exports because of its nuclear ambitions. Washington said it saw "an element of bluster" in the threat.

Brent fell 0.9 percent to $108.28 a barrel by 1150 GMT after climbing more than a dollar in the previous session. Prices have surged over 5 percent since December 16. <O/R>

European shares reversed early losses to add 0.5 percent .FTEU3, while Asian stocks slipped, leaving the MSCI world equity index .MIWD00000PUS flat on the day. Futures pointed to a slightly lower open on Wall Street..N

"The threat by Iran to close the Strait of Hormuz supported the oil market yesterday, but the effect is fading today as it will probably be empty threats as they cannot stop the flow for a longer period due to the amount of U.S. hardware in the area," said Thorbjoern bak Jensen, oil analyst with Global Risk Management.

It has been an ugly year for equities outside the United States.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.7 percent, keeping it on course for a 2011 loss of 18 percent, underperforming a 12 percent decline in European shares .FTEU3 and a 9 percent drop in world stocks.

Japan's Nikkei stock average .N225 ended down 0.2 percent, on track for a 17.6 percent drop this year. .T   Continued...