London: Oil prices charged to a fresh two-and-a-half year high yesterday as traders eyed increasing violence in major producer Libya, feeding fears of rising inflation and restraining gains in equities.

Global stocks were slightly higher with emerging markets down and European shares flat. US markets were closed for a national holiday.

Protests broke out in the Libyan capital Tripoli for the first time following days of unrest in the city of Benghazi and some army units defected to the opposition in what has become one of the bloodiest revolts to convulse the Arab world.

Financial markets are particularly sensitive to the violence in Libya because it exports around 1.1 million barrels per day of crude.

Brent oil was up $1.90 a barrel at $104.44 (Dh383.54) having earlier risen to a new high of $104.60.

"There is uncertainty about supplies. Markets don't like uncertainty," said Bernard McAlinden investment strategist at NCB Stockbrokers.

Rising oil prices, meanwhile, feed into inflation, one of the main current concerns of investors, who are in a generally bullish mood on expectations that the global economic recovery is now sustainable.

One result was to weaken equities. MSCI's emerging market benchmark was down 0.1 per cent on the day.

The FTSEurofirst 300 was flat, off its opening lows after Eurozone manufacturing data came in above consensus. Ifo sentiment data out of Germany was also above forecast.

European stocks, however, have been hit by mixed earnings. Thomson Reuters Proprietary Research reported yesterday that the number of European companies missing fourth quarter expectations is outpacing those beating them.

The earnings growth rate, actual and predicted, for the STOXX 600 is 18.9 per cent, compared with a December estimate of 36.1 per cent.

Brewer Carlsberg, for example, fell yesterday after posting a surprise fall in fourth-quarter operating profit.

The euro was firm, having hit its highest level in more than 10 days against a background of hawkish comments from European Central Bank officials that added to expectations a rise in interest rates is on the way this year.

The common currency was trading at $1.3705, up 0.1 per cent on the day. It rose to $1.3727 earlier in the session, the highest since February 10, extending a rise on Friday that was also related to comments from an ECB Executive Board member.

With an upcoming Irish election on Friday likely to see a party which is openly calling for a renegotiation of its EU bailout agreement come to power, strategists say there is a risk that the euro could come under pressure.

Eurozone policymakers are also struggling toward a more comprehensive package that they hope can put an end to debt troubles.

"With neither the core nor the periphery signalling willingness to find a compromise on the issues for now, the chances are that potential political impasses could erode euro sentiment going forward," said Valentin Marinov, strategist at Citi FX.

Core Eurozone bond yields were lower as investors bought caution in the face of the Middle East and North Africa events.

BP suspends exploration amid turmoil

London: BP suspended exploration work in the Libyan desert as shares of Eni SpA dropped on concern worsening violence in the North African country will disrupt oil and gas production.

BP, which has no producing assets in the country, was evacuating families and non-essential staff, spokesman David Nicholas said yesterday. Eni, the largest foreign producer in Libya, fell as much as 4.1 per cent, the most since May.

Saif Al Islam called on protesters against his father Muammar Gaddafi's 41-year rule to engage in dialogue or face a civil war that risked the country's oil wealth, warning that "rivers of blood" would flow if demonstrations continued. Libya holds the largest crude oil reserves in Africa. Brent crude oil rose to $104.60 a barrel (Dh384.13), the highest since 2008.

"The violence is unsettling and it's definitely right to be cautious," said Jason Kenney, head of oil and gas research at ING Wholesale Banking in Edinburgh. "It seems like Eni is most at risk. The gas coming into Europe is quite significant, so it's a concern."

Shokri Ganem, chairman of Libya's National Oil Corporation, said he had no information about a disruption in production of crude. Al Jazeera reported earlier that Libya's Nafoora oil field had stopped producing because of an employee strike.

Eni, which produced 244,000 barrels of oil equivalent a day in Libya in 2009, said operations in the country were proceeding as usual. Shares were down 3.9 per cent in Milan trading.

- Bloomberg