Mid-East fears send oil prices rocketing

OIL hit a record high above $78 a barrel yesterday as fighting between Israel and Hezbollah guerrillas in Lebanon heated up, while US stocks slid on investors’ worries about the Middle East conflict and General Electrics’ poor outlook.

Gold prices shot up to a seven-week high at $669 an ounce, while oil hit a record $78.40 a barrel in overnight electronic trading.

The dollar rallied against the major currencies, advancing in particular against the yen after the Bank of Japan raised interest rates on Friday for the first time in six years.

The central bank, though, signalled it would take its time before tightening monetary policy again.

US Treasury bond prices rose slightly on safe-haven buying, though they showed little reaction to soft US economic data that lowered expectations for an August interest-rate increase from the Federal Reserve.

US retail sales fell 0.1% in June, confounding expectations for a rise of 0.4%, while the University of Michigan’s preliminary reading on its July consumer sentiment index fell.

The Dow Jones industrial average was down 107.48 points, or 0.99%, at 10,738.81, after falling to a session low at 10,701.34 — a drop of 1.3% that sent the blue-chip Dow briefly into negative territory for the year. The Standard & Poor’s 500 Index was down 8.69 points, or 0.69%, at 1,233.69, after falling more than 1% to a session low at 1,228.45.

The Nasdaq Composite Index was down 17.60 points, or 0.86%, at 2,036.51, after sliding more than 1% to a session low at 2,027.11.

General Electric, a bellwether for the economy and a Dow component, reported higher second-quarter earnings. But its stock fell to $32.19, the lowest level in nearly two years, after its forecast for third-quarter earnings disappointed investors.

In addition to concerns about a slowing economy, investors are fearful of higher energy costs as a result of the escalating conflict between Israel and Lebanon.

Israeli strikes against Hezbollah targets and Lebanese civilian installations yesterday stoked global fears about a Middle East oil-supply disruption.

US crude oil for August delivery was up 65 cents at $77.35 per barrel in early afternoon trading on the New York Mercantile Exchange. Earlier, it hit a record overnight at $78.40 the highest price since the NYMEX began trading oil futures in 1983.

COMEX gold for August delivery jumped $14.50 to $669, the highest since May 30, in early afternoon trading in New York.

The dollar rose 0.85% to 116.32 yen in early afternoon trading in New York.

Late Thursday in New York, the dollar was at 115.34 yen. The euro fell to $1.2637 from $1.2691 late on Thursday.