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Oil, Bonds Gain on Libya Turmoil; Asia Stocks, Kiwi Dollar Drop

Oil climbed to the highest level in more than two years and bonds rose, while Asian shares and U.S. stock futures declined as violence intensified in Libya. The New Zealand dollar weakened following an earthquake.

Crude for April delivery surged 7.7 percent from the Feb. 18 close in New York to $96.60 a barrel at 11:28 a.m. in Tokyo. The MSCI Asia Pacific Index lost 1.7 percent. Standard & Poor’s 500 Index futures sank 1.1 percent from last week. New Zealand’s dollar fell against all 16 major peers. Ten-year Treasury yields dropped to the lowest level in two weeks. The cost of insuring Japanese debt against default increased after Moody’s Investors Service changed the nation’s debt-rating outlook to negative.

Libya, holder of Africa’s largest oil reserves, erupted into violence last night, with al-Jazeera reporting that at least 250 people died in Tripoli alone. Turmoil in the Middle East may intensify inflation concerns and spur policy makers to “tighten incrementally more than they otherwise would have,” according to Goldman Sachs Group Inc. strategist Timothy Moe.

“The Middle East issue is affecting sentiment today as investors grapple with uncertainty whether the political instability will spill over across the region,” said Im Jeong Jae, a fund manager at Shinhan BNP Paribas Asset Management Co. in Seoul, which oversees $28 billion of assets.

West Texas Intermediate oil for April delivery earlier rose as much as 9.8 percent. The less actively traded March contract, which expires today, gained 7.3 percent to $92.50 a barrel. Brent crude for April delivery rose 1.1 percent to $106.87 a barrel on the London-based ICE Futures Europe exchange, extending yesterday’s 3.1 percent jump.

Middle East Violence

Gold for immediate delivery was little changed at $1,406.05 an ounce after rising for six days. Silver was little changed at $33.91 an ounce after gaining to a 31-year high of $34.3187 an ounce. Corn for May delivery advanced as much as 3.3 percent to $7.4425 a bushel on the Chicago Board of Trade, the highest level for the most active contract since July 2008.

Middle East stocks dropped yesterday, with benchmark indexes for Dubai, Tunisia and Morocco losing more than 1 percent each, as Libya become the focal point of protests that have spread to Yemen, Djibouti, Iran and Bahrain.

Libyan leader Muammar Qaddafi said in comments broadcast on state TV that he hadn’t fled the country as diplomats resigned and soldiers deserted in protest over a crackdown that has left hundreds dead. Secretary of State Hillary Clinton called for a stop to the “unacceptable bloodshed.”

Builders, Airlines

More than six stocks fell for each that gained on MSCI’s Asian index, which was on course for its largest slump since Jan. 20. Benchmark indexes retreated in all markets open for trading.

Hyundai Engineering & Construction Co., a South Korean builder that gets about 38 percent of its sales from the Middle East, tumbled 9.1 percent. Korean Air Lines Co. tumbled 10 percent while China Airlines Ltd. lost 6.3 percent, leading airlines lower on concern rising fuel costs will erode profits.

BHP Billiton Ltd., the world’s biggest mining company, advanced 2.3 percent after agreeing to buy Chesapeake Energy Corp.’s Fayetteville assets in central Arkansas for $4.75 billion in cash, entering the U.S. shale gas business.

U.S. index futures indicate that shares may decline when markets resume trading today after the President’s Day break yesterday. The S&P 500 gained 1 percent last week, its third consecutive weekly rally.

Moody’s Downgrade

Japan’s Nikkei 225 Stock Average dropped 2 percent. The Markit iTraxx Japan index advanced three basis points to 84.5 basis points, according to Citigroup Inc. prices after Moody’s changed the nation’s credit-rating outlook to negative from stable, citing the risk that the government won’t do enough to its tackle debt burden. The rating stands at Aa2.

The cost of protecting New Zealand sovereign bonds from default jumped the most in almost three months after a 6.3 magnitude temblor hit the city of Christchurch. Credit-default swaps gained 5 basis points to 66 basis points, according to Australia & New Zealand Banking Group Ltd. prices. The kiwi slumped 1.3 percent to 75.37 U.S. cents.

Australia’s dollar fell 0.3 percent to $1.0065 and the South Korean won lost 0.5 percent to 1,123.40 per dollar as tensions in the Middle East sapped demand for higher-yielding assets. The dollar and yen were stronger against most peers.

“Given the tensions that are still prevalent in the Middle East and North Africa, we probably should still see some risk- aversion trades,” said Matthew Brady, executive director for foreign exchange at JPMorgan Chase & Co. in Sydney.

Yields on 10-year Treasuries fell six basis points to 3.53 percent, after earlier dropping to 3.52 percent, the lowest level since Feb. 3. Japan’s 10-year yields dropped three basis points to 1.275 percent, and Australia’s slid four basis points to 5.60 percent.