Libyan turmoil hits stocks as oil surges (AP)

LONDON – Mounting concerns over Libya's violent crisis battered stocks once again Tuesday and sent oil prices surging, while the earthquake in the New Zealand city of Christchurch pushed the country's currency sharply lower.

With deep rifts opening up in Moammar Gadhafi's regime, air force pilots defecting and a bloody crackdown in the capital of Tripoli, investors are fretting over how the crisis will end and what the impact on the North African country's oil production will be.

Libya is the world's 18th largest oil producer, pumping out around 1.8 million barrels a day, or a little under 2 percent of global daily output. The OPEC country also sits atop the biggest oil reserves in the whole of Africa.

With so much uncertainty surrounding a large chunk of the world's daily oil production, oil prices surged. Benchmark crude for March delivery was up $7.88 a barrel, or 9.1 percent, to $94.08 a barrel in electronic trading on the New York Mercantile Exchange.

"The Middle East will remain the market's focus today with moves in the oil price probably the best single indicator of the market's assessment of the wider implications of events there," said Adrian Foster, an analyst at Rabobank International.

With the oil price rising at such a rapid rate, stocks are inevitably under severe pressure.

Rising crude prices are a particular worry for investors as they reinforce fears of inflation and raw materials costs. They also stoke worries of a big drop in global demand levels, as experienced in previous oil price shocks in 1973-4, 1979 and 2008.

Given that unappetizing backdrop, investors' appetite for risk in other markets fell sharply. When risk appetite is low, investors usually look for shelter in the perceived safe havens of the U.S. dollar and gold at the expense of more risky investments such as stocks.

In Europe, the FTSE 100 index of leading British shares was down 1.1 percent at 5,946 while Germany's DAX fell 0.5 percent to 7,283. The CAC-40 in Paris was 1.4 percent lower at 4,041.

Wall Street was also poised for a retreat at the open as traders come back from a three day holiday weekend — Dow futures were down 1 percent at 12,257 while the broader Standard & Poor's 500 futures fell 1.4 percent to 1,324.

In the currency markets, the euro was down 0.6 percent at $1.3567 while the dollar fell 0.2 percent to 82.88 yen even after an announcement from Moody's Investor Services that it was putting Japan's credit rating on watch for a possible downgrade.

The impact of the Moody's statement was short-lived as the agency is merely lagging its rival Standard & Poor's, which earlier this year did actually downgrade its rating on Japan by one notch below Moody's Aa2 rating.

"The impact of developments in the Africa and Middle East on the yen have far outweighed any impact from Moody's announcement overnight to place Japan's credit rating on negative watch," said Lee Hardman, currency economist at the Bank of Toky0-Mitsubishi UFJ.

Even though Japan has massive public debts, it is widely considered to be one of the safest places for investors to park their cash in troubled times.

A powerful earthquake in the New Zealand city of Christchurch also rattled markets in the region. The quake occurred in the middle of the workday, toppled tall buildings and churches, crushed buses and killed at least 65 people in one of the country's worst natural disasters.

Following the quake, the New Zealand dollar slid to $0.7507 from $0.7636 before while New Zealand's benchmark index fell 0.7 percent to 3,358.71.

Elsewhere in Asia, the Nikkei 225 stock average shed 1.8 percent to close at 10,664.70. Hong Kong's Hang Seng lost 2.1 percent to 22,990.81 and South Korea's Kospi dropped 1.8 percent to 1,969.92.

Mainland China shares saw their biggest loss in over a month — the benchmark Shanghai Composite Index dived 2.6 percent to 2,855.52 while the Shenzhen Composite Index skidded 2.7 percent to 1262.82.

Comments by China's central bank governor, Zhou Xiaochuan, expressing Beijing's determination to rein in inflation renewed worries over the likelihood of further moves by the government to cool price increases.

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Pamela Sampson in Bangkok contributed to this report.

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Gaddafi son warns of civil war as turmoil spreads (Reuters)

TRIPOLI (Reuters) – Libya's Muammar Gaddafi will fight a popular revolt to "the last man standing," one of his sons said on Monday, after protests broke out in the capital for the first time following days of unrest in the city of Benghazi.
Anti-government protesters rallied in Tripoli's streets, tribal leaders spoke out against Gaddafi, and army units defected to the opposition as oil exporter Libya endured one of the bloodiest revolts to convulse the Arab world.
Gaddafi's son Saif al-Islam Gaddafi appeared on national television in an attempt both to threaten and calm people, saying the army would enforce security at any price.
"Our spirits are high and the leader Muammar Gaddafi is leading the battle in Tripoli, and we are behind him as is the Libyan army," he said.
"We will keep fighting until the last man standing, even to the last woman standing ... We will not leave Libya to the Italians or the Turks.
Wagging a finger at the camera, he blamed Libyan exiles for fomenting the violence. But he also promised dialogue on reforms and wage rises.
The cajoling may not be enough to douse the anger unleashed after four decades of rule by Gaddafi -- mirroring events in Egypt where a popular revolt overthrew the seemingly impregnable President Hosni Mubarak 10 days ago.
"People here in Benghazi are laughing at what he is saying, it is the same old story (on promised reform) and nobody believes what he says," a lawyer in Benghazi told the BBC after watching the speech.
"He is liar, liar, 42 years we have heard these lies."
The United States said it was weighing "all appropriate actions" in response to the unrest.
"We are analyzing the speech ... to see what possibilities it contains for meaningful reform," a U.S. official said.
Libya's ambassador to India told the BBC he was resigning in protest at the violent crackdown that has killed more than 200. Ali al-Essawi also accused the government of deploying foreign mercenaries against the protesters.
In the coastal city of Benghazi, protesters appeared to be largely in control after forcing troops and police to retreat to a compound. Government buildings were set ablaze and ransacked.
"Security now it is by the people" the lawyer said.
In the first sign of serious unrest in the capital, thousands of protesters clashed with Gaddafi supporters. Gunfire rang out in the night and police used tear gas to disperse demonstrators, some of whom threw stones at Gaddafi billboards.
South Korea said hundreds of Libyans, some armed with knives and guns, attacked a South Korean-run construction site in Tripoli, injuring at least 4 foreign workers.
Human Rights Watch said at least 223 people have been killed in five days of violence. Most were in Benghazi, cradle of the uprising and a region where Gaddafi's grip has always been weaker than elsewhere in the oil-rich desert nation.
Habib al-Obaidi, a surgeon at the Al-Jalae hospital, said the bodies of 50 people, most of them shot, were brought there on Sunday afternoon. Two hundred wounded had arrived, he said.
"One of the victims was obliterated after being hit by an RPG (rocket-propelled grenade) to the abdomen," he said.
Members of an army unit known as the "Thunderbolt" squad had brought wounded comrades to the hospital, he said. The soldiers said they had defected to the cause of the protesters and had fought and defeated Gaddafi's elite guards.
"They are now saying that they have overpowered the Praetorian Guard and that they have joined the people's revolt," another man at the hospital, lawyer Mohamed al-Mana, told Reuters by telephone.
BENGHAZI THE CRADLE
If Gaddafi had hoped to dismiss Benghazi as a provincial problem, he faced an alarming development on Sunday night as crowds took to the streets of Tripoli.
One resident told Reuters he could hear gunshots and crowds.
"We're inside the house and the lights are out. That's what I hear, gunshots and people. I can't go outside," he said.
An expatriate worker said anti-government demonstrators were gathering in residential complexes.
"The police are dispersing them. I can also see burning cars," he said.
Support for Gaddafi, the son of a herdsman who seized power in 1969, among Libya's desert tribes was also waning.
The leader of the eastern Al-Zuwayya tribe threatened to cut oil exports unless authorities halted what he called the "oppression of protesters."
Speaking to Al Jazeera television, Shaikh Faraj al Zuway said: "We will stop oil exports to Western countries within 24 hours" if the violence did not stop.
Libya is Africa's fourth biggest oil exporter. It produces 1.6 million barrels of oil a day of which 1.1 million barrels are exported, according to Libyan data.
Oil jumped by more than $1 a barrel to $103.5 a barrel on fears the unrest could disrupt supplies.
Akram Al-Warfalli, a leading figure in the Al Warfalla tribe, one of Libya's biggest, told Al Jazeera: "We tell the brother (Gaddafi), well he's no longer a brother, we tell him to leave the country."
The Libyan uprising is one of series of revolts that have raced like wildfire across the Arab world since December, toppling the long-time rulers of Tunisia and Egypt and threatening entrenched dynasties from Bahrain to Yemen.
The West has watched with alarm as long-time allies and old foes have come under threat, appealing for reform and urging restraint.
REVILED AND REVERED
Gaddafi has been one of the most recognizable figures on the world stage in recent history, reviled by the West for many years as a supporter of militants and revolutionary movements while at the same time cutting a showmanlike figure with his flowing robes, lofty pronouncements and bevy of glamorous female assistants attending him in his Bedouin tent.
Former U.S. President Ronald Reagan once called him "the Mad Dog of the Middle East" and in 1986 unleashed air raids against Tripoli in response to the bombing of a Berlin disco frequented by U.S. servicemen, an attack the United States blamed on Libya.
The 1988 destruction of a Pan Am airliner over Lockerbie, Scotland, by Libyan agents in which 270 people were killed brought him fresh notoriety and led to U.N. sanctions.
But recent years have seen a rapprochement with the West as countries such as Britain and Italy sought a slice of its oil wealth and other lucrative commercial deals.
Though portrayed overseas as a ruthless despot, Gaddafi has enjoyed some popular support at home. After toppling King Idriss in 1969, he forged a middle road between communism and capitalism and oversaw rapid development of the poor country.
While using ruthless tactics against dissidents, he also spent billions of oil dollars to improve living standards.
(Reporting by Tarek Amara and Christian Lowe; Writing by Angus MacSwan; Editing by Matthew Jones and Robert Birsel)
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