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Oil Gains With Stocks Amid Iraq Crisis; Bonds Fluctuate

Iraq violence
The remains of a burnt out Iraqi army vehicles are seen at the Kukjali Iraqi Army checkpoint, some 10km of east of the northern city of Mosul. Photographer: Safin Hamed/AFP/Getty Images

Oil rose, capping the biggest weekly gain this year, as fighting in Iraq triggered concern of a return to civil war. U.S. stocks advanced as Intel Corp. rallied, while Treasuries were little changed amid speculation central banks may raise rates sooner than forecast.

West Texas Intermediate crude gained 0.4 percent, after surging 2 percent yesterday. The Standard & Poor’s 500 Index rose 0.3 percent as of 4 p.m. in New York, paring a drop for the week to 0.7 percent. The rate on 10-year Treasuries was little changed, as the yield curve approached its flattest level in almost five years. Sterling reached the strongest in 19 months against the euro and gilts tumbled as Bank of England Governor Mark Carney signaled interest rates may rise.

Government forces in Iraq, OPEC’s second-biggest oil producer, are seeking to dislodge Islamist militants from cities north of Baghdad after they overran army positions in Mosul this week. Intel rallied 6.8 percent after raising its sales forecasts. Consumer confidence unexpectedly fell in June to a three-month low, adding to signs of a more restrained pickup in the second-quarter economy.

“The upsurge of violence in Iraq has raised additional risk of supply disruption,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The situation in Iraq is going to continue to guide the market for a while.”

The S&P GSCI gauge of 24 commodities advanced 0.3 percent. The measure is up 2.1 percent for the week, the most this year. West Texas Intermediate oil rose as much as 1.2 percent to $107.68 a barrel, and extended its weekly gain to 4.1 percent. The volume of all futures traded was 42 percent higher than the 100-day average.

Gold, Silver

Gold futures added less than 0.1 percent, capping the second straight weekly gain amid demand for the precious metal as a haven. Silver jumped 0.6 percent, climbing for the fifth straight session, the longest rally since Feb. 18.

U.S. President Barack Obama said yesterday he won’t rule out using airstrikes to help the government in Baghdad beat back militants. Clashes continued today between the sides in Tikrit about 80 miles (130 kilometers) north of the capital and in the surrounding countryside, which consists of farmland with a Sunni-Muslim majority.

“The Iraq situation has the potential to become more significant, so people are naturally concerned,” said Angus Gluskie, a fund manager who helps oversee more than $550 million at White Funds Management in Sydney. Any pullback will be limited because “the underlying factors that have driven the market higher haven’t really changed. They’re still reasonably strong.”

Consumer Confidence

The S&P 500 fell for a third day yesterday as reports on jobless claims and retail sales fell short of estimates. The S&P 500 has advanced 6.6 percent since a low on April 11 as data showed the economy is recovering from the impact of extreme weather earlier this year.

The Thomson Reuters/University of Michigan preliminary index of sentiment, released today, decreased to 81.2 from 81.9 in May. The median projection in a Bloomberg survey of 67 economists called for 83.

Wholesale prices in the U.S. unexpectedly fell in May, suggesting demand isn’t robust enough to push inflation closer to the Fed’s target.

Intel surged 6.8 percent after raising its sales forecasts for the second quarter and the full year. Express Inc. rose 21 percent after Sycamore Partners said it plans to buy the clothing chain. OpenTable Inc. jumped 48 percent after Priceline Group Inc. agreed to buy the online restaurant reservation company for $2.6 billion in cash.

The Chicago Board Options Exchange Volatility Index slid 3 percent to 12.18. The gauge, known as the VIX, has jumped 14 percent this week.

Yield Curve

Yields on benchmark Treasury 10-year notes rose less than 1 basis point to 2.61 percent to push the weekly gain to 2 points. Three-year yields rose 1 basis point to 0.93 percent after touching 0.96 percent, the highest since Sept. 6, and are up 10 basis points this week. Five-year yields added 1 basis point to 1.69 percent for a five basis-point weekly increase.

Longer-maturity bonds have outperformed this week as signs the U.S. recovery is uneven helped bolster demand for safer assets with extra yield. The difference between five- and 30-year yields fell toward the narrowest since 2009.

“You have a hawkish statement out of a central bank,” said Ira Jersey, an interest-rate strategist in New York at Credit Suisse Group AG, one of 22 primary dealers that trade directly with the Fed. “That could mean the Fed may not be too far behind.

BOE Comments

Carney said the Bank of England may raise its key interest rate from a record low earlier than investors expected. His comments contrast with the European Central Bank, which announced additional economic stimulus last week.

Sterling gained versus all but one of its 31 major peers even as Carney said higher borrowing costs risked stretching homeowners burdened with debt and derailing the recovery.

The pound appreciated 0.4 percent to 79.79 pence per euro after reaching 79.81 pence, the strongest level since Nov. 13, 2012. It advanced for an eighth day versus the 18-nation common currency, its longest run of gains since April 2010. Sterling rose 0.2 percent to $1.6969.

The Stoxx Europe 600 Index fell 0.2 percent, paring an earlier loss of 0.9 percent and ending the week little changed.

Barratt Developments Plc and British Land Co. each slid more than 4 percent as Chancellor of the Exchequer George Osborne pledged to increase the Bank of England’s power to restrict borrowing. Total SA rose 0.9 percent as a gauge of oil-related stocks posted the best performance on the Stoxx 600.

Emerging Markets

The MSCI Emerging Markets Index lost 0.5 percent, trimming this week’s gain to 0.5 percent. India’s S&P BSE Sensex slid 1.4 percent and the rupee weakened on concern rising oil prices will spur inflation and widen the nation’s trade deficit.

The yen weakened from a four-month high against the euro as Bank of Japan Governor Haruhiko Kuroda said the economy was recovering moderately, signaling officials will maintain their stimulus.

The yen weakened 0.2 percent to 138.09 per euro, after rising yesterday to the strongest level since Feb. 6. It slipped 0.3 percent to 102.01 per dollar. The euro slipped 0.1 percent to $1.3540.

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