Brent crude futures climbed near $100 a barrel on Monday and Asian stocks fell, hit by fears of unrest throughout the Middle East sparked by deadly protests in Egypt.
More than 100 people have been killed during six days of protests in Egypt aimed at toppling President Hosni Mubarak.
A wider conflagration in the region could threaten the flow of oil at a time when policymakers in emerging markets are already bedeviled by high food and fuel prices and some developed economies are gaining momentum.
To the extent that the instability continues, investor reaction will most likely push oil and Treasury bond prices higher, and global equities lower. Mohamed El-Erian, co-chief investment officer at bond giant PIMCO, told Reuters.
The situation in Egypt is very fluid.
For now, investors watched closely for any sign of growing instability in the Middle East. U.S. S&P 500 futures were up 0.2 percent after Wall Street closed down 1.8 percent on Friday, while U.S. Treasury futures were flat on the day.
The U.S. dollar, yen and Swiss franc, which all gained on Friday in reaction to the escalating Egyptian situation were largely stable, with protesters in Cairo camped out and calling for Mubarak to step down after 30 years of rule.
The prospect of more expensive energy bills in high growth emerging markets added to unease about rising inflation among investors, who had last week pulled money out of developing equity markets for the first time in more than a month.
Emerging Asian currencies, down broadly on Monday, will be tested this week ahead of Lunar New Year holidays, with focus on inflation data from Indonesia, South Korea and Thailand due on Tuesday.
Japan's Nikkei share average <.N225> was down 1.2 percent, at one point hitting its lowest since early December 2010.
Japan's biggest gas and oil developer Inpex Corp <1605.T> gained 2.7 percent in heavy trade, becoming the second biggest gainer on the Nikkei.
The MSCI Asia Pacific ex-Japan stock index <.MIAPJ0000PUS> fell 1 percent, with selling scattered across the consumer discretionary, industrial and materials sectors.
Stocks in Indonesia and the Philippines were the hardest hit, with benchmark indexes falling 2.1 and 2.6 percent, respectively. These markets were among last year's biggest gainers in Asia and the latest bout of risk reduction has made investors more willing to take profits.
Egyptian markets and bankers were shuttered on Monday.
OIL HEADS TO $100
U.S. crude for March delivery was trading at around $90 a barrel after hitting a high of $90.87 a barrel early in the session. Focus would likely be on Brent futures though, where the lead month contract was trading just shy of $100 a barrel.
For the global economy, Egypt is less important, though it does matter for access to the Suez Canal, a key oil distribution route, ANZ Bank economist Sharon Zollner said in a note to clients.
The greater fear is that the turmoil could spread to other Middle East countries, including even Saudi Arabia. If that happens, then all bets on oil prices are off.
In the currency market, the euro was largely stable at $1.3605. The euro has rallied for three weeks and risen to two-month highs, though the Egyptian turmoil as well as risks surrounding a European Central Bank meeting on Thursday may press it against major support at $1.3535 this week.
Gold and other precious metals are traditionally seen as safe havens at times of geopolitical uncertainty. Spot gold was steady in early trade at $1,339 per ounce as more investors saw it as relatively cheap after the metal touched a near four-month low on Friday.
(Additional reporting by Jennifer Ablan in NEW YORK and Adrian Bathgate in WELLINGTON; Editing by Alex Richardson)