U.S. crude prices rose nearly 2 percent to 2- year highs on Monday as worries about supply disruption increased due to deepening unrest in Libya, while Asian stocks declined as concerns about the Middle East also weighed.

European shares are expected to open down between 0.4-0.6 percent, according to financial bookmakers.

Asian markets have see-sawed following volatile oil in recent weeks, but the MSCI ex-Japan index <.MIAP00000PUS> is about a percent away from a 2- year peak tested in January, indicating markets have been largely resilient to the Libyan crisis.

Still, investors are worried that a prolonged period of high oil prices could stifle economic growth and erode corporate profits, while adding to inflationary pressures in emerging Asia.

On Monday, the MSCI ex-Japan index fell nearly a percent.

U.S. crude rose 1.8 percent to a 2-1/2-year high above $106 a barrel as civil war brewed in Libya, while investors kept a close eye on top exporter Saudi Arabia, home to most of OPEC's spare capacity, where clerics forbid protests at the weekend.

ICE Brent crude for April surpassed $117 a barrel, trading up 1.2 percent.

The concern is that with what we are seeing in Libya, it's purely fear driving the market, said Jonathan Barratt, managing director at Commodity Broking Services in Sydney.

Each time the price moves up a little, people are forced into the market. Once it's feeding itself, it will continue to rise, Barratt said, adding $120 may be the peak without further supply disruptions.

A reasonably strong batch of U.S. data on Friday that showed the jobless rate falling to a near two-year low failed to boost sentiment, as investors remained firmly focused on the developments in the Middle East and the resulting longer-term impact on oil.

U.S. crude is up by more than a fifth in the last two weeks.

The spike in oil combined with soaring food prices present fresh problems for central banks in Thailand, Malaysia, South Korea and New Zealand who head for policy meetings this week.

The region is a big importer of oil and market players are worried that sharp increases in prices would stifle growth and fuel inflationary pressures.


The MSCI APXJ index is trading at 12.7 times forward 12-month earnings, at par with its long-term average, I/B/E/S data showed -- indicating that markets are now fairly valued.

Higher oil prices are a key factor weighing on investor sentiment. Heavier energy costs have numerous negative implications for a manufacturing-focused energy importer like South Korea, said Y.S. Rhoo, a market analyst at Hyundai Securities.

Tokyo's Nikkei average <.N225>, Australia's S&P/ASX 200 index <.AXJO> and South Korea's KOSPI <.KS11> ended down more than 1 percent each.

Indian stocks <.BSESN> fell by nearly 2 percent after a key ally of the ruling coalition quit, threatening policy paralysis.

Wall Street erased most of its weekly gains on Friday, with the S&P 500 Index <.SPX> falling by 0.74 percent. The CBOE Volatility Index <.VIX>, Wall Street's fear gauge, rose slightly to 19.11 but stayed well below a May peak of 48.

Rising tensions in the Middle East also stoked demand for precious metals and government bonds.

Gold, often sought in times of geopolitical tensions, rose to near a lifetime high at $1,434.60 an ounce, while silver surged 3 percent to 31-year highs as investors piled into safe havens. Gold hit a record $1,440 last week.

Treasury debt prices stabilized after Friday's gains with benchmark ten year notes at 3.49 percent, a shade above a one-month low of 3.39 percent hit earlier this month.

In currencies, the dollar struggled against a basket of major currencies <.DXY> after failing to get a big boost from the U.S. data, while the euro was supported on expectations of an interest rate hike next month from a hawkish European Central Bank.

The kiwi dollar held above a one-year low versus the euro and a five-month low against the dollar but is set to stay pressured ahead of an expected interest rate cut this week.

(Editing by Ramya Venugopal; Additional reporting by Ian Chua in SYDNEY, Alejandro Barbajosa in SINGAPORE and Antoni Slodkowski in TOKYO)