Higher oil prices hit European shares, euro

Mon Feb 27, 2012 7:21am EST
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By Richard Hubbard

LONDON (Reuters) - Concerns that rising oil prices could prevent an economic recovery sent European shares and the euro lower on Monday, undermining market optimism about the European Central Bank's second offer of cheap funds to euro zone banks.

A weekend meeting of twenty finance ministers from the world's major economies failed to reach an agreement on making more funds available to Europe to fight its debt crisis.

But investors took little notice, focusing instead on whether the German parliament will endorse the Greek bailout on Monday. The vote is expected to be tight but lawmakers will almost certainly support the package.

"Up until now higher oil prices were seen as a sign of improving growth, but oil is reaching levels where it will have a negative impact," said Richard Falkenhall, currency strategist at SEB in Stockholm.

March Brent crude futures were down about $1.20 to $124.25 a barrel in early European trade as some traders took profits after the recent gains. The contract is up nearly 16 percent this year due to supply concerns related to worsening tensions over Iran's disputed nuclear program.

Oil may also have pared gains as Saudi Arabia increased exports sharply in the past week and because the Obama administration is looking to see what circumstances could warrant a tap of U.S. strategic oil reserves.

At a time when the global economy is generally struggling, higher oil costs tend to weaken demand for industrial metals and this has pushed copper futures lower.

The FTSEurofirst 300 .FTEU3 index of top European shares fall 0.8 percent to 1,068.54 points and down from a seven-month high last week as investors worried that oil prices would hurt Europe's economy just as it needs growth to help it overcome its debt crisis.   Continued...

Traders concentrate on their screens at the Frankfurt stock exchange February 2, 2012. REUTERS/Alex Domanski