Brent oil futures climbed near $100 a barrel and Asian stocks fell on Monday, hurt by fears that deadly protests in Egypt may foment unrest throughout the Middle East and choke oil supplies, accelerating a move out of riskier assets.
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 have been gaining momentum.
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, suggesting that investors would take a wait-and-watch approach to the Middle East.
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.
The U.S. dollar, yen and Swiss franc, which all strengthened against the euro 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, fund tracker EPFR Global said in a note.
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 finished 1.2 percent lower, and at one point hit its lowest since early December.
The MSCI Asia Pacific ex-Japan stock index fell 1.1 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 banks were closed 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.
Egypt controls the Suez Canal and the Suez-Mediterranean (SUMED) Pipeline, which between them moved more than 2 million barrels per day (bpd) of crude and oil products in 2009.
Some analysts believe the selling of risky assets in emerging Asia will subside rather quickly because of the region's relatively superior fundamentals, particularly when it comes to credit markets.
Asia will begin to decouple very quickly and even in the Middle East will start distinguishing between names. People will start looking to go long the risk and some of these trades will begin unwinding soon, said Vijay Chander, credit strategist with Standard Chartered Bank.
In the currency market, the euro was largely stable at $1.3610. 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 later this week.
Gold and other precious metals are traditionally seen as safe havens at times of geopolitical uncertainty. Spot gold has been under pressure though because growing optimism about the U.S. recovery reduced the need for havens.
Gold was at $1,335 per ounce, just above a four-month low of $1,308 on Friday.
(Additional reporting by Jennifer Ablan in NEW YORK, Adrian Bathgate in WELLINGTON and Umesh Desai in HONG KONG; Editing by Alex Richardson)