Oil prices rose above $125 a barrel on Friday as the United Nation's nuclear watchdog said Iran has sharply stepped up work on uranium enrichment, putting Brent crude on track for a fifth straight weekly gain.
The sharp run-up in oil prices has increased worries that slower consumer demand will stymie global growth, particularly as the euro zone remains mired in a debt crisis and appears headed for recession.
A day after hitting a record high in euro terms, Brent crude jumped $1.63 to $125.25. The news on Iran, which came from a document from the International Atomic Energy Agency, was seen as certain to intensify concerns about Iran's atomic aims.
Brent has risen more than 11 percent this month, mainly on worries over Iranian supply. European buyers of Iranian oil have cut back on purchases ahead of a European Union embargo effective July 1. Some of Iran's biggest customers in Asia including China have also reduced their buying.
The recent resurgence in the price of crude oil has led to speculation that, in a repeat of what happened at this time last year, a spike in energy prices could undermine real economic growth just when the recovery appears to be gathering momentum again, said Paul Ashworth, chief U.S. economist at Capital Economics in Toronto.
Despite oil's rise, U.S. stocks crept closer to peaks last seen before the 2008 collapse of Lehman Brothers. World stocks gained as well.
The Standard & Poor's 500 index was not far from 1,370, considered the upper end of a technical barrier and a level not seen since June 2008, before the Lehman Brothers collapse and the ensuing financial crisis.
Over the past four sessions the S&P has hovered around 1,360 and it closed at a nine-month high on Thursday.
The Dow Jones industrial average <.DJI> was up 2.91 points, or 0.02 percent, at 12,987.60. The Standard & Poor's 500 Index <.SPX> was up 3.59 points, or 0.26 percent, at 1,367.05. The Nasdaq Composite Index <.IXIC> was up 11.30 points, or 0.38 percent, at 2,968.28.
We've touched these significant points (in the stock indices) and they haven't shown a lot of support; that makes me want to look at the short term with a cautious eye, said Joseph Cangemi, managing director at BNY ConvergEx Group in New York.
Global stocks as measured by MSCI were up 0.4 percent, while the FTSEurofirst 300 <.FTEU3> index of top European shares ended up 0.2 percent.
Energy shares were among those giving the biggest boost to markets, with Chevron
In Europe, results from companies including Telecom Italia
Rising energy costs supported the safe-haven appeal of U.S. government debt, and U.S. Treasuries were on track for their best weekly performance in four weeks.
The benchmark 10-year U.S. note was up 8/32 in price to yield 1.98 percent.
EURO EXTENDS GAIN VS DOLLAR
Data on Friday confirmed Germany's economy shrank by 0.2 percent in the fourth quarter but investors were optimistic that Europe's biggest economy will avoid falling into recession after a strong business sentiment reading on Thursday.
The euro was last up 0.7 percent on the day at $1.3462, just off a peak of $1.3475, a fresh 2-1/2-month high.
The yen slumped to 7-1/2-month lows against the dollar, hurt by reported selling by Japanese importers. The dollar hit a fresh 7-1/2-month high of 80.77 yen and last traded at 80.74, up 0.9 percent on the day, according to Reuters data.
The yen has been on a downward trajectory for over a week on
monetary easing by the Bank of Japan, the country's shrinking current account surplus, interest rate differentials with the United States and rising crude oil prices.
The move in dollar/yen came because the Bank of Japan's easing policy came as a surprise to the market, said Steve Barrow, currency analyst at Standard Bank.
(Reporting by Susan Fenton in London and Caroline Valetkevitch in New York; Additional reporting by Alex Lawler in London; Ryan Vlastelica, Chris Reese and Julie Haviv in New York; and Fredrik Dahl in Vienna; Editing by James Dalgleish)