US markets

The dollar drifted off its lows for the day late in the European session with concerns over political upheaval in the Middle East, and Libya in particular, weighing even as activity slowed as the U.S. marked a public holiday. The euro, which had set a session high of $1.3727 after strong German economic data, began a gentle decline as the afternoon wore on, falling as low as $1.3647 and then rangebound in the mid $1.36 area. Notably, Brent crude futures reached their highest since September 2008, around $105 a barrel, while the U.S. equivalent, West Texas Intermediate, rose to around $90 on Nymex, its highest since early February. But while Middle East concerns dominate, the euro is still well bid above $1.36, buoyed by strong economic data, which in turn underscores the case for higher interest rates in the currency bloc.

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The single currency had come into the European trading session on a strong footing after hawkish comments from European Central Bank chief Jean-Claude Trichet and fellow rate setter Lorenzo Bini Smaghi. For those bidding the euro higher, Monday's economic data was further reason for cheer, at least for a short while.

The Ifo business climate index, which measures sentiment in the euro zone's biggest economy, Germany, rose to 111.2 in February, its highest level since 1969. Backing that up, the purchasing managers' index for Germany's private sector also proved strong, hitting a record high in February. The flash reading of Germany's Composite Output Index, a gauge of activity based on partial results of a survey of manufacturing and services firms, rose to 61.5 in February from 61.3 in January, according to Markit Economics. A reading above 50 indicates an expansion in activity. The data suggest that Germany is on track for gross domestic product growth of 3% this year and that it can certainly weather higher interest rates, especially at a time when inflation is picking up with oil prices at two-year highs. Separately, the drubbing experienced by Angela Merkel's CDU party in local German elections appears not to have dented the euro, although market players will also be looking towards the national elections in Ireland Friday, which may prove crucial for immediate concerns on the region's sovereign debt crisis. The pound remains well supported above $1.62 against the dollar.

Once again, expectations of an interest rate rise are holding sway after it was revealed last week that inflation hit 4% in January, double the Bank of England's 2% target. Opinion among some BOE rate setters may be shifting towards a rate increase and the minutes of the central bank's February deliberations due Wednesday will be key for market expectations. The dollar was at $1.3665 from $1.3695 late Friday in New York, according to EBS via CQG. The dollar was at Y83.18 from Y83.14, while the euro was at Y113.66 from Y113.93. The U.K. pound was at $1.6221 from $1.6248. The dollar was at CHF0.9473 from CHF 0.9446. The ICE Dollar Index, which tracks the dollar against a trade-weighted basket of currencies, was at about 77.717 from 77.621.

European Markets

European shares closed sharply lower Monday, led by the financial sector, as investors nervously watched political unrest spread across the Mideast and North Africa. The Stoxx Europe 600 index finished down 1.3% at 287.18. The benchmark spent the day in the red but losses accelerated as the afternoon wore on. Among the top regional indexes, France's CAC 40 fell 1.4% to 4,097.41 and Germany's DAX 30 declined 1.4% to 7,321.81. The U.K.'s FTSE 100 index fell 1.1% to 6,014.80. Escalating violence in Libya had a significant impact on Italy's FTSE MIB, which fell 3.6% to 22,230. Italy is one of the European countries with the closest ties to Libya. Companies with significant exposure to the dictatorship include aerospace and defense firm Finmeccanica SpA, energy giant ENI SpA and bank UniCredit SpA. ENI shares fell 5.1%, while UniCredit shares were down nearly 6%. The situation in Libya also affected oil prices, sparking concerns over a potential disruption to crude supplies from the North African nation. Financial shares performed poorly, with Lloyds Banking Group PLC down 4% in London and Societe Generale down 3.1% in France. In the top three worst performers on the Stoxx 600 were Greek banks Piraeus Bank, which lost 10%, and EFG Eurobank Ergasias, which declined 9%. They weighed on the ASE Composite, which lost 2.7%.

Asian Markets

Asian markets ended mostly lower Monday as escalating unrest in the Mideast and North Africa kept investors on edge, though energy sector shares posted gains as the turmoil pushed crude-oil prices higher. In China, shares advanced as investors shrugged off the latest tightening measures from Beijing, but airlines underperformed in Shanghai and Hong Kong after a weekend increase in fuel prices. The broad regional decline came as oil prices remained high in the wake of reports of gunfire in the Libyan capital Tripoli, as well as mass protests in Bahrain, Morocco and Iran. Hong Kong's Hang Seng index fell 0.5%, Taiwan's Taiex slipped 0.1% and South Korea's Kospi gave up 0.4%. Vietnamese stocks were the worst hit during the session, with the benchmark VN index tumbling 4% after the government said it will raise electricity prices by an average 15.3% from March, stoking concerns about the impact on inflation. Among gainers, Japan's Nikkei Stock Average added 0.1%, while China's Shanghai Composite index climbed 1.1%. Shares of Chongqing Brewery Co. and ZTE Corp. were among those that rose by the day's 10% limit. Also supporting the advance, Dongfang Electric Corp. rose 1.6%, Joincare Pharmaceutical Group Industry Co. rose 4.7%, Baoshan Iron & Steel Co. added 1.5% and Citic Securities climbed 3.4%. But many banks and property developers declined or rose less than the broader markets. China Construction Bank Corp. ended little changed and Industrial & Commercial Bank of China fell 0.7%, while Gemdale gave up 0.2% in Shanghai. In Hong Kong, CCB fell 0.9% and China Merchants Bank Co. shed 1.6%, while Shimao Property Holdings slid 1.3%.

Base Metals

Base metals closed mixed on the London Metal Exchange Monday, as copper struggled to make headway and market players speculated over the metal's ability to break out of its current range. At the PM kerb close, LME three month copper was down 0.5% at $9,810 a metric ton. Nickel closed up 0.5% on the day at $29,300/ton, supported by Friday's news that Brazilian miner Vale SA (VALE) has shut down a furnace at its Copper Cliff nickel smelter in Canada for at least 16 weeks, due to accidental damage to the furnace wall. The closure is expected to result in the loss of around 15,000 tons of refined nickel, a significant loss for a market with an already tight outlook for the year ahead, noted market players. Aluminum, zinc, nickel and lead also closed in positive territory, as investors sought cheaper alternatives to copper and tin.

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