Global stocks fall further on oil, inflation concerns

World stocks fell further from a recent 30-month high on Wednesday while the euro rose as unrest in Libya drove oil higher and fanned concerns about inflation that could hamper a global economic recovery.

Wall Street suffered its worst day since August on Tuesday as the turmoil in oil exporter Libya gave investors an excuse to sell stocks and consolidate positions after a rally that has driven world stocks 6 percent higher this year.

The spike in oil prices comes at a time when many fast-growing emerging economies already face rising price pressure and the need to raise interest rates.

European Central Bank officials also stressed they stand ready to fight inflation with tighter monetary policy on Tuesday, prompting interest rate futures to bring forward expectations for a quarter point interest rate hike to August.

“There is very little reason for people to be adding to risk at the moment. The Middle East is going to cast a pall over the markets until they can see any proper direction,” said Justin Urquhart Stewart, director at Seven Investment Management. The MSCI world equity index .MIWD00000PUS was down 0.25 percent at 340.74, falling more than 2 percent from Monday’s peak. The Thomson Reuters global stock index .TRXFLDGLPU was down 0.15 percent on the day.

The FTSEurofirst 300 index .FTEU3 fell 0.4 percent. Oil companies with operations in the Middle East fell, including BP (BP.L) and Royal Dutch Shell (RDSa.L), down 0.8 and 0.7 percent respectively.

Emerging stocks .MSCIEF lost half a percent.

SUPPLY CUT?

Popular protests have toppled entrenched leaders in Egypt and Tunisia, but Libya’s defiant leader Muammar Gaddafi said he would not be forced out by the unrest sweeping Africa’s third-largest oil producer.

At last three oil companies have halted output in Libya, which pumps 1.6 million barrels per day, or nearly 2 percent of global supply.

U.S. crude rose as high as $96.08 a barrel, the highest level since October 2008. Brent crude rose 84 cents to $106.62 a barrel. On Monday, Brent hit a 2-1/2-year high of $108.70.

The euro rose 0.4 percent to $1.3718. Luxembourg’s Yves Mersch and Nout Wellink of the Netherlands both said on Tuesday the ECB was ready to fight inflation by increasing interest rates when needed — adding to a series of warnings from the bank’s policymakers this year.

“The associated warning about the risks of distortions from excessively low interest rates might not have been a clarion call for higher rates, but again highlight the clear divergence with the approach of the Fed,” said David Watt, strategist at RBC Dominion Securities.

“These comments overshadowed concerns about the EU periphery.”

The dollar .DXY fell 0.3 percent against a basket of major currencies.

The bund futures were steady on the day.