Oil prices surged past $103 on Thursday as pro-democracy protests in Egypt turned violent, while commodities markets raced even higher, adding to worries of mounting inflationary pressures could threaten the global economic recovery.

North Sea Brent crude futures rose nearly a dollar to $103.27 per barrel, the highest in 28 months, after supporters of Egyptian President Hosni Mubarak opened fire on protesters, in what many saw as an official crackdown on anti-government demonstrations.

Fears that unrest in Egypt and Tunisia will spread to other countries in the Middle East and threaten the region's oil exports overshadowed the bearish effect of soaring gasoline inventories in the United States, prompting investors to move to safer assets, or the sidelines.

In currency markets, the euro paused below a 12-week peak, though tough talk on the inflation from the European Central Bank after its monthly meeting later in the day could give it fresh impetus to test resistance around $1.3950.

Higher energy prices along with copper, sugar and cocoa prices at or near record highs have put a sharp dent in appetite for riskier assets such as emerging market equities as investors fear price pressures will get out of control.

In fast growing countries such as Brazil, India and China, worries have grown that policymakers will need to tighten monetary policy aggressively to tame rising consumer prices, which could put a dampener on a key driver of the global economy.

The current strong pace of activity is clearly not compatible with comfortable and stable levels of inflation, underscoring the urgency of continued monetary policy tightening, said Leif Eskesen, chief economist for India & ASEAN at HSBC, in a report on India's services sector.

The report showed business activity in the country's services sector grew at a faster pace in January than the month before, but the input price index hit a 30-month high.

Higher prices for raw materials are already squeezing corporate profit margins. While many firms appear able to pass those costs on for now, sharp spikes will eventually force consumers to cut back on spending.

U.S. candy maker Hershey Co reported overnight that it was seeing meaningfully higher costs for ingredients such as cocoa and sugar, while Australia's Qantas announced a round of fuel surcharges on Thursday.

Japan's Nikkei <.N225> fell 0.3 percent, easing slightly after posting its biggest jump in two months the day, as investors took a more cautious stance and awaited key earnings results and Friday's U.S. payrolls data.

Shares of Panasonic Corp <6752.T> fell 3.2 percent after it posted a worse-than-expected drop in quarterly profit as tough price competition and a stronger yen offset help from Japan's incentive scheme for eco-friendly appliances.

Overall, foreigners remained net buyers of Japanese stocks for a 13th straight week on optimism that the U.S. and global economies are gathering momentum.

Developed market shares are likely to outperform those in emerging markets over the next six months, until it is clear inflation is under control, said Shane Oliver, chief investment strategist at AMP Capital Investors.

U.S. private employers added more jobs than expected in January, the 12th consecutive month that companies took on staff, adding to hopes that the American labor market is slowly recovering and bolstering hopes for the more comprehensive U.S. jobs report on Friday.

Elsewhere in Asia, Australia's main share benchmark <.AXJO> rose 0.5 percent as strong metals prices continued to support shares of resources firms. Mining giants BHP and Rio Tinto both rose more as copper prices stayed just shy of $10,000 a tonne, with supplies tight against strong demand.

But regional trading was thin overall, with markets in Greater China, South Korea and much of Southeast Asia closed for Lunar New Year holidays.

(Additional reporting by Antoni Slodowski in Tokyo and Ruby Cherian in Bangalore)

(Editing by Kim Coghill)