Oil's jump pulls up global stocks

Oil jumped Tuesday, driving world stocks up, after Goldman Sachs forecast strong fuel demand growth, moderating concerns about the pace of the global economic recovery.

The euro rebounded after surprisingly strong German business sentiment in May, though nagging fears about Europe's spreading debt crisis threatened to make gains short-lived.

Goldman Sachs, one of the most influential institutions in the global oil spot market, raised its 12-month price forecast for Brent crude to $US130 a barrel from $US107 and increased its end-2012 forecast to $US140 a barrel from $US120, citing global economic growth and tight OPEC spare capacity.

US crude and Brent futures jumped more than 2% on the news before paring gains on profit taking. US crude oil was up 0.76% at $US98.42 a barrel in afternoon trade, while Brent was 1.4% higher at $US111.50.

Energy shares rose with the higher oil prices and provided a small boost to world stocks, driving the MSCI All-Country World index 0.3% higher, a day after dropping 1.8%.

European shares edged higher. The FTSEurofirst 300 index of top shares closed up 0.20%, though it remained in the red for the year. Miners were among the biggest gainers.

"Markets are in consolidation mode. They're getting through negative concerns," said Karen Olney, head of thematic strategy at UBS.

"You've got the end of QE2, China tightening and a lack of earnings news. Today is a bounce back from yesterday."

Energy shares rose on Wall Street, but key stock indexes dipped on losses in technology and industrial shares.

Concerns about the US economic recovery were also haunting investors.

"There isn't much for the market to get excited (about) at this point, especially going into summer months and the QE coming to an end soon," said Randy Frederick, director of trading and derivatives at the Schwab Center for Financial Research in Texas, Austin.

The Federal Reserve's second round of quantitative easing, or QE2, which is set to end next month, has been credited with pumping vast amounts of liquidity into markets.

The Dow Jones industrial average dipped 13.81 points, or 0.11%, to 12,367.45, while the Standard & Poor's 500 Index lost 1.73 points, or 0.13%, at 1,315.64.

The Nasdaq Composite Index was down 10.54 points, or 0.38%, at 2,748.36.

The US stock market closed at its lowest in a month yesterday.

Euro recovers

The euro recovered after hitting a two-month low against the dollar yesterday. It was up 0.4% at $US1.4102, but gains were contained by concerns about the impact of a possible debt default by Greece in other peripheral euro-zone economies.

Data showing German business sentiment stabilising unexpectedly in May helped push the European single currency briefly back above $US1.4100. It had hit a low on Monday of $US1.3968.

Monday's sell-off of the euro followed another credit downgrade of Greece, a ratings warning about Italy and a Spanish voter revolt against austerity measures designed to address the country's debt.

Underscoring those risks, Moody's Investors Service said on Tuesday a Greek debt default could knock the ratings of Portugal and Ireland into junk territory.

"A Greek default would be highly destabilizing and would have implications for the credit-worthiness of issuers across Europe," Moody's EMEA chief credit officer Alastair Wilson told Reuters.

Gold prices rose on concerns about the spreading of the euro-zone debt crisis, hitting a nearly three-week high of $US1,526.50 an ounce. It was later bid at $US1,523.30 an ounce, 0.4% higher on the day.

German government bonds fell as investors cashed in on yesterday's rally of core euro zone debt and digested the German business sentiment data that suggested Europe's top economy might retain its strong growth momentum longer than thought.

US Treasury debt prices erased early losses after an auction of $US35 billion of two-year notes found solid demand. Benchmark 10-year notes were up 2/32 in price, with their yield at 3.1194%.