March 31, 2004
By Nigel Stephenson

LONDON (Reuters) - World oil prices rose on Wednesday after a blast at the third largest refinery in the United States, boosting oil company shares, while the yen rose to its highest level against the dollar in four years.

Oil stocks were expected to give Wall Street an upward nudge.

Expectations the European Central Bank could cut interest rates on Thursday faded, pushing the euro higher against the dollar and hitting euro zone government bond prices.

Oil prices jumped half a dollar a barrel and gasoline hit a record high after the explosion and fire at the BP refinery in Texas. Prices were already rising on expectations that OPEC, meeting in Vienna, would implement planned output cuts on April 1.

"With continued low product stocks in the United States and almost no spare capacity worldwide, the market is on a knife-edge," said Geoff Pyne, consultant with Sempra Energy in London. "I can't see much of a downside to it."

U.S. light crude hit a high of $36.77 a barrel and was last at $36.37, up 12 cents. Brent crude for May was up 16 cents at $32.61, off a high of $33. Gasoline for April was at $1.1610 a gallon, off a record of $1.1768.

BP said there was no indication of "any outside influence" in the blast and that the fire was out.

Heavyweight oil stocks led a modest rise in European shares. BP was up 1.1 percent and France's Total was up 1.4 percent.

The FTSE Eurotop 300 index was up 0.5 percent and the narrower DJ Euro STOXX 50 index was up 0.74 percent.

Tokyo shares edged up on growing optimism the Japanese economy is recovering despite the surge in the yen.

The Nikkei average ended the 2003/04 fiscal year up 47 percent, its biggest gain in more than three decades.

The Nikkei edged up 0.19 percent on Wednesday to 11,715.39. The broader TOPIX index rose 0.32 percent.

"Given there's less concern about banks' earnings and foreigners still have an appetite for Japanese stocks, we think the Nikkei can rise as high as 14,500 by June, although worries about the U.S. and Chinese economies might start weighing on the market after that," said Kenichi Azuma, a strategist at Cosmo Securities.

YEN SURGES

The yen surged beyond 104 to the dollar, boosted also by a perception Tokyo was intervening less to curb the currency's strength. The yen was last at 104.03 to the dollar, having hit a low of 103.45.

"The dollar's break through 105 yen implies more acceptance of yen strength from Japanese policymakers," said Bilal Hafeez, foreign exchange strategist at Deutsche Bank.

"Economic fundamentals are pointing to further yen strength and it will be harder for Japan to justify intervention."

The euro rose against the dollar and was last up half a percent at $1.2229.

Euro zone government bond prices fell, pushing 10-year yields to three-week highs ahead of Thursday's ECB meeting.

"Speculation for a rate cut had been a bit too much, so people are getting a bit nervous ahead of the ECB," said Rabobank economist Ditmer de Vries.

Traders were also looking ahead to Friday's crucial U.S. jobs data for clues to the strength of economic recovery.

The European Commission said its economic sentiment indicator rose marginally in March, a sign of a lack of momentum in the recovery.

The 10-year Bund yield was up 1.6 basis points at 3.95 percent, having earlier marked 3.976 percent -- its highest level since March 8. The interest rate-sensitive two-year Schatz yield was up 3.5 basis points at 2.15 percent.

U.S. stock index futures were higher, indicating a modestly positive start on Wall Street.

The price of gold rose as the dollar weakened. Spot gold was last at $424.25/425 an ounce, compared with $421.30/421.80 at Tuesday's New York close.

http://story.news.yahoo.com/news?tmpl=story&cid=568&ncid=749&e=1&u=/nm/20040331/bs_nm/markets_global_dc