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NEW YORK (AP) - Long-term Treasury prices rose Friday after the New York Federal Reserve reported that manufacturing in its region contracted this month. Another gauge showed that nationwide consumer confidence skidded to a 16-year low.

The news sent the yield on the rate-sensitive two year note briefly down to its weakest level in four years. Prices and yields move in opposite directions.

The New York Fed's Empire State index of factory activity plunged almost 21 points to a negative 11.7 reading, the weakest level in almost three years. Readings below zero show shrinkage. February also marked the fourth straight decline for the index. Economists had expected a much healthier reading of 5.75, according to Thomson/IFR.

The report helps build a case that the economy is on the brink of recession, although a recession requires two consecutive quarters of contraction and can only be declared in hindsight.

Separately, the Reuters/University of Michigan's consumer sentiment index dropped to 69.6 this month, its worst level since 1992 and down sharply from 78.4 in January. Although the news triggered a strong reaction in the bond market, some economists caution that consumer cash flow is a more tangible metric than sentiment readings.

Although the data has negative portents for the economy, it is helpful to the Treasury market, as investors generally turn to government-backed bonds when they are worried about the economy.

In addition, the report puts extra pressure on the Fed to continue cutting interest rates. The central bank cut the overnight Fed funds rate by 1.25 percentage points in January. Fixed-income investors want to see more rate cuts to rejuvenate ailing debt markets.

The benchmark 10-year Treasury note rose 9/32 to 97 24/32 with a yield of 3.77 percent, down from 3.82 percent late Thursday, according to BGCantor Market Data.

The 30-year long bond gained 25/32 to 96 24/32 with a yield of 4.58 percent, down from 4.65 percent the day before.

However, there was some selling pressure on short-term notes.

The 2-year note fell 3/32 to 100 12/32 with a 1.92 percent yield, up from 1.90 percent late Thursday. Immediately after the sentiment report the 2-year yield touched 1.82 percent, its worst level since 2004.

After hours trade had no impact on yields. At 5:30 p.m. Eastern the 10-year yield remained 3.77 percent, the 30-year yield was still 4.58 percent and the 2-year yield stood at 1.92 percent.

The yield on the 3-month note fell to 2.21 percent from 2.27 percent on Thursday, as the discount rate dropped to 2.16 percent from 2.24 percent.

In other data news, the Fed said industrial output rose modestly last month, due to strength in the utility sector. Industrial production increased 0.1 percent in January, in line with December's rise and analysts' expectations.

Separately, the Labor Department reported that U.S. import prices rose 1.7 percent in January, as oil prices jumped. In December, prices slipped 0.2 percent.

Demand for Treasurys Thursday also was stoked by a complex barrage of negative developments elsewhere in the credit markets. Since the subprime issue first surfaced last summer, Treasurys have been the asset of choice for investors spooked by the unraveling of normally stalwart forms of debt assets.

This week saw turmoil in the market for short-term auction-rate munis when bidders could not be found for weekly notes offered by a number of top-rated local government issuers. There also are mounting problems in the leveraged loan market, as well as some ongoing weakness in corporate short-term commercial paper.

"In 25 years of working in this business, I don't believe I have seen more market disruption from so many different sources," said Kevin Giddis, managing director of fixed-income trading at Morgan Keegan.

The unusual degree of queasiness about debt issued by highly reliable companies and municipalities is linked to worries about bond insurers that unwisely backed subprime debt. There are concerns that they may not be able to shore up enough capital to withstand an expected avalanche of defaults.

One of the wobbly bond insurers, FGIC Co., agreed to be split into two separate entities. One would house its structured finance business where its troubled subprime assets are sheltered. The other would contain the municipal bonds that FGIC backs which normally are considered desirable.

LONDON (Thomson Financial) - Oil rallied to a one-month high late afternoon as the ongoing supply spat between the US and Venezuela and expectations for a cold snap sent jitters through the market.

News of an equipment failure at a Delaware refinery operated by Valero added upward momentum to a market already buoyed by supply fears, analysts said.

Prices climbed more than 4 usd a barrel on Friday and were driven still higher overnight after Venezuelan president Hugo Chavez threatened to cut oil supplies to the US yesterday, before slipping into consolidation mode in morning trade.

However, the news is still fuelling buying this afternoon, analysts said.

"The market is very volatile right now," said Alaron trader Phil Flynn. "The weather forecasts continue to be cold, and heating oil is leading us up on this rally. That is adding to uncertainty (over Venezuela) to keep the market pretty well supported."

At 5.10 pm, New York's WTI crude for March delivery was up 2.02 usd at 93.79 usd per barrel, having earlier touched a high of 94.72 usd, its strongest level since Jan 10.

Meanwhile in London, Brent crude for March delivery was up 1.81 usd at 93.75 usd per barrel.

Chavez's claim that he will halt US sales is linked to legal action brought by Exxon Mobil. The oil giant is pursuing the assets of state oil company Petroleos de Venezuela in US, British and Dutch courts as it challenges the nationalisation of a multibillion dollar oil project by Chavez's government.

A British court has issued an injunction freezing as much as 12 bln usd in assets, leading Chavez to threaten to cut off oil supply to the superpower.

"If you end up freezing (Venezuelan assets) and it harms us, we're going to harm you," Chavez said yesterday. "Do you know how? We aren't going to send oil to the United States. Take note, Mr. Bush, Mr. Danger."

Venezuela, the world's fifth-biggest oil exporter, is also the fourth-largest supplier of crude to the US. While analysts earlier discounted Chavez's threats as unlikely to materialise, uncertainty over the president's next move is continuing to unsettle the market, analysts said.

Any prospect of a supply shortfall is likely to strongly propel prices higher. They rallied towards the end of last week on news that political tensions could cut exports from Nigeria by as much as 1 mln barrels a day, and amid fears of reduced production in the North Sea.

"This week's trading focus will continue to gravitate away from economic indicators and the possibility of a recession and toward geopolitical events capable of disrupting export flows from major producers such as Nigeria and Venezuela," said Ritterbusch & Associates head Jim Ritterbusch.

"For now, we continue to view the Nigerian supply situation as likely having a larger near-term impact on global oil balances and as such we expect further Nigerian developments this week to maintain volatility at a high pitch with an upward bias," he added.

ECOFIN: Dutch Fin Min: French Must Stick To Budget Deadline

BRUSSELS -(Dow Jones)- The French government must stick to an agreement reached by euro-zone members in Berlin last year to balance their budgets by 2010, Dutch Finance Minister Wouter Bos said Monday.

The deal was struck in April, but following its election in May, the French government of President Nicholas Sarkozy said it may only be able to balance its budget in 2010 as it focuses on tax cuts designed to boost economic growth over the long-term.

Speaking to reporters ahead of a meeting of finance ministers from the euro zone, Bos said all governments should honor the agreement.

"We should stick to the rules we agreed on," he said.

Bos said the euro-zone economy is likely to slow this year, but less severely than the U.S. economy.

"I guess there will be a slowdown in growth, less so than in the U.S.," he said. "I don't think we should panic now."

Bos also said he was happy with the statement on foreign exchange rates issued by members of the Group of Seven leading developed economies at their meeting in Tokyo Saturday.

The G7 left its views on foreign exchange rates largely unchanged, despite growing unease among euro-zone businesses about the U.S. dollar's weakness against the euro.

"I'm happy with the statement," Bos said. "I think it's fine like this."

LONDON (Thomson Financial) - The euro fell in afternoon trade with rising risk aversion and a lack of data wiping out earlier gains.

The currency had risen earlier in the day following comments from European Central Bank president Jean-Claude Trichet that there had been no discussion of interest rate cuts at the governing council's meeting last week when rates were left on hold at 4.00 pct. However analysts said that other recent comments from ECB officials coupled with evidence that euro zone economic activity is starting to wane mean the comments did little to later expectations that rates are set to fall in the coming months.

"While Trichet might have been trying to temper rate cut expectations, the less hawkish hue of the ECB last week suggests that the ground work is being

prepared for a rate cut," said analysts at BNP Paribas.

Several major European banks, including UBS and Commerzbank are due to publish results this week which will be closely eyed to see to what extent the subprime losses of US banks are mirrored across the Atlantic.

"Rising risk aversion through greater write-downs would provide support for the dollar against the euro," said the BNP Paribas analysts.

Stocks on Wall Street have also opened down this afternoon, with the dollar and yen gaining on the back of rising risk aversion. This was partly driven by an announcement from American International Group Inc that it has more mortgage debt to write off then previously announced.

Ashraf Laidi, currency strategist at CMC Markets, said Wednesday's release of US January retail sales figures will be key in determining the direction of equity markets this week, which will have a knock-on effect on risk aversion and currencies.

If sales recover after posing a 0.4 pct fall in December then stocks could well receive a much-needed boost.

Meanwhile the pound slipped back a touch after earlier gains, which came on the back of figures showing UK producer prices soared during January.

Output prices rose a monthly 1.0 pct after a 0.4 pct increase in December, the highest monthly rise since January 1995 and well above analyst expectations for another 0.4 pct increase. Input prices rose by 2.6 pct in January from December, far above analyst expectations for a 1.3 pct rise.

Analysts said the numbers signal consumer price inflation could pick up sharply in the coming months, limiting the Bank of England's ability to cut interest rates.

"Today's data will likely add to the already elevated CPI price inflation, and hence we expect the MPC to emphasize upside risks to inflation in its Inflation Report this Wednesday," said Alina Anishchanka, currency strategist at UBS.

Tomorrow sees the release of consumer price inflation data for January, with the annual headline rate expected to have risen to 2.3 pct from 2.1 pct in December.

London 1552 GMT London 1245 GMT

US dollar

yen 106.66 down from 106.73

sfr 1.1038 up from 1.0988

Euro

usd 1.4484 down from 1.4551

yen 154.54 down from 155.31

sfr 1.5993 up from 1.5989

stg 0.7440 down from 0.7470

Sterling

usd 1.9465 down from 1.9478

yen 207.66 down from 207.90

sfr 2.1490 up from 2.1403

Australian dollar

usd 0.9029 down from 0.9100

stg 0.4639 down from 0.4644

yen 96.35 down from 96.54

NEW YORK (AP) - Long-term Treasury prices rose Monday after news of problems at American International Group Inc. again raised concerns about risky low-quality debt.

The insurer said it will make more information public about the methods it used to value the complicated debt pools known as collateralized debt obligations, or CDOs. These assets are a major concern to investors because CDOs contain some subprime debt instruments that are likely to default and it is widely suspected their current prices do not reflect that liability.

AIG also said it had been told there was some weakness in its internal controls at the end of 2007.

Worries about subprime mortgages and other poor-quality debt have fueled a string of vigorous rallys for Treasurys since last August, as risk-averse investors have opted for the safety of government-backed bonds.

"The AIG news that is coming out is impacting the market," said Tom di Galoma, head of Treasurys trading at Jefferies & Co. "There is fear in the market that there will be more negative headlines on this."

The benchmark 10-year Treasury note gained 16/32 to 99 8/32 with a yield of 3.59 percent, down from 3.65 percent late Friday.

The 30-year long bond gained 29/32 to 100 5/32 with a yield of 4.36 percent, down from 4.43 percent. The 2-year note rose 2/32 to 100 14/32 with a yield of 1.89 percent, down from 1.93 percent.

The subprime crisis was also discussed at length over the weekend at a meeting of the Group of Seven finance ministers in Tokyo. After the global economic summit, German Finance Minister Peer Steinbruck said the group fears that losses on securities due to subprime exposure in time will total $400 billion.

The finance chiefs also expressed concern that it is still unknown where much of the subprime pain will emerge, as collateralized debt obligations were sold to institutional and government investors around the world.

And subprime debt is not the only risky asset class that investors are worried about. In recent sessions there also have been concerns about a possible wave of defaults on the low-rated corporate loans that were used to finance a leveraged buyout boom in 2006 and 2007.

Investors suspect that banks will try to sell off these leveraged loans at bargain rates to get them off their books soon.

BRUSSELS (Thomson Financial) - European Commission president Jose Manuel Barroso said he assured European Central Bank president Jean-Claude Trichet "of the commission's unwavering support for the independence" of the ECB during bilateral talks here today.

"The governance of the euro area has served us well," Barroso said in a statement before taking the unusual step of attending this evening's meeting of euro zone finance ministers.

He said his message at the meeting will be that while the euro's foundations and the Lisbon strategy of economic reforms are sound, much work remains to be done.

"We must strive to deliver growth, jobs, low inflation and low interest rates consistently over time," he said.

"We must not endanger the stability of those foundations by yielding to the temptations for protectionism, or futile attempts to stem financial globalisation, or an artificial stimulus of the economy," he said.

Barroso said Europe "has no rational reason to fear recession".

He added: "We must not take action -- and we must not send messages -- that could make the situation worse."

He called instead for efforts to contain the fallout from the recent market turmoil.

Barroso also urged member states to keep their deficits low.

His plea comes as ministers are due to debate France's plans to delay budget breakeven until 2012 from an agreed deadline of 2010.

Spanish economy minister Pedro Solbes also called on countries to stick to their deficit pledges.

"We are in favour of respecting our commitments," Solbes said when asked about the French deficit on his way into the meeting.

German finance minister Peer Steinbrueck urged member states to support the stability and growth pact underpinning the euro, and said that the larger member states, in particular, should reach budget balance by 2010.

"We agreed on a commitment in Berlin in April last year that in particular the great member states should bind themselves to the commitment to reach their medium-term objectives by, at the latest, 2010," he said.

LONDON (Thomson Financial) - European government bonds were higher, tracking falls on equity markets on fresh write-off fears and as concerns about the global economic outlook intensified following the G7 meeting over the weekend.

The tumble on share markets has been driven by more bad news from financial companies, with American International Group revealing that its auditors have questioned the company's internal controls over the valuation of credit default swap portfolio obligations.

"AIG, 'accounting' and 'credit default swap' all in the same headline have investors scurrying for cover and bidding bonds back up again," said Michael Cartine at Thomson IFR Markets.

Further bad news came from Standard Chartered PLC, which announced it is withdrawing plans to provide liquidity to its Whistlejacket Capital structured investment vehicle.

Meanwhile, this weekend's communique from the G7 meeting in Tokyo only served to give further justification for financial markets to step up levels of risk aversion.

The communique focused heavily on the ongoing credit crunch and risks to global growth. US Treasury Secretary Henry Paulson also stressed that the turbulence in financial markets is both "serious" and "persisting," and he expects "continued volatility as risk is repriced."

Over in the UK meanwhile, gilts pared losses slightly but remained firmly in the red, after much stronger-than-expected producer price inflation data this morning suggested the Bank of England will have limited room to cut interest rates.

The figures showed UK input prices jumped by 2.6 pct in January from December, way above analyst expectations for a 1.3 pct rise and giving a massive annual rise of 19.1 pct, the biggest increase for 22 years.

Output price figures meanwhile showed that companies have had to pass on these extra costs into their prices, with the monthly rise of 1.0 pct the biggest since January 1995 and the annual rise of 5.7 pct the highest since July 1991.

"For a market which is aggressively priced for future easing, this will make for uncomfortable reading and rate cut expectations will need to be pared back," said Daragh Maher at Calyon.

At Yield Change on

1540 GMT pct previous close

March euribor future (Liffe) 95.76 dn 0.04

June euribor future (Liffe) 96.25 dn 0.02

GERMANY

March bund future (Eurex) 117.56 up 0.33

4.00 pct Jan 2018 govt bond 101.22 3.84 up 0.11

FRANCE

4.25 pct Oct 2017 govt bond 102.28 3.96 up 0.15

ITALY

5.25 pct Feb 2018 govt bond 102.50 4.23 up 0.08

UK

March gilt future 110.58 dn 0.27

5.00 pct March 2018 govt bond 104.26 4.46 dn 0.42

March short sterling future 94.42 dn 0.08

June short sterling future 94.87 dn 0.08

US Business Group Cites Ways To Reduce US,EU Regulatory Hurdles

WASHINGTON -(Dow Jones)- Increasing transparency and improving data quality are just two actions the U.S. and European Union should take to reduce regulatory obstacles and improve transatlantic trade, the Chamber of Commerce said Monday.

Responding to a joint report by the European Union and U.S. Office of Management and Budget, the business federation said improvements in areas of data quality, transparency, stakeholder input, cost-benefit analysis and the application of sound science would help make business regulations in the two countries more seamless.

"When it comes to protecting consumers and the environment, there is a strong need to reduce the differences between U.S. and EU regulations," said Stan Anderson, chair of the Chamber's Global Regulatory Cooperation Project. "We need to improve the methods of regulating business if we are to mitigate obstacles to trade, investment and economic growth on both sides of the Atlantic."

If the EU and U.S. were to base their regulations on the same core principles, global commerce would benefit greatly, the chamber said in a news release.

The Chamber of Commerce, which represents 3 million companies and organizations, is the world's largest business federation.

Merkel: Financial Market Products Need To Be More Transparent

FRANKFURT -(Dow Jones)- Financial market products need to be more transparent, German Chancellor Angela Merkel said Wednesday in a speech at a regional party convention.

Pointing to highly integrated financial markets, Merkel said it was inappropriate that the side effects of the financial turmoil had to be shouldered by "everyone", while nobody had a full grasp of what the risks are when financial market products are traded.

U.K Government Repays GBP1.7 Billion To Metronet Senior Lenders In Restructure

LONDON -(Dow Jones)- The U.K government has provided a GBP1.7 billion grant to the U.K.'s Transport for London, or TfL, to pay lenders to the bankrupt Metronet business, which TFL is acquiring out of administration.

In a statement Wednesday, TfL said that as a result of Metronet Rail BCV Ltd. and Metronet Rail SSL Ltd. being placed in administration in July, lenders were able to exercise a put option.

This requires London Underground Ltd. to pay GBP1.74 billion within seven days. However the Secretary of State for Transport Wednesday said a grant of GBP1.7 billion will be paid to TfL from the Department for Transport, to be used toward payment to senior lenders.

The lenders' debt claims were guaranteed by the government to be repaid to 95%.

The settlement is a step forward in the transfer of the Metronet businesses to TfL.

"Our priority remains the removal of Metronet from PPP Administration as quickly as possible," said London Underground Managing Director Tim O'Toole in a statement."A great deal of progress has already been made and we remain on track to transfer the two Metronet companies to two dedicated Transport for London companies in the early part of 2008."

WASHINGTON (Thomson Financial) - Treasury Secretary Henry Paulson became the third senior official in as many days to call on mortgage lenders and servicers to speed up their efforts to find workouts for homeowners in danger of foreclosure.

In response to questioning in a Senate Budget Committee hearing, Paulson emphatically said, "I'm gonna be all over them," if companies in the mortgage industry are not making maximum efforts to find and help borrowers who face losing their homes when their mortgages reset to higher rates.

Federal Reserve Governor Randall Kroszner and Treasury Under-Secretary Robert Steel both warned mortgage industry executive groups earlier this week that they needed to speed up their efforts for finding and helping endangered borrowers.

He was optimistic that the fast-track programs the administration has worked out with the mortgage industry could be successful. "I will be unpleasantly surprised if we don't find that people who can afford the initial rate are going to be helped," he said.

The refinancing and other programs are aimed at homeowners who have been making their mortgage payments at the initial interest rate, but may not be able to afford the impending higher rates.

LONDON (Thomson Financial) - Oil fell sharply as worries that a looming US recession will crimp demand combined with improved supply side news in the form of better than forecast increases in US energy inventories.

The US Energy Information Administration said earlier US crude stocks rose by 7 mln barrels last week to total 300 mln barrels. Analysts were expecting stocks to rise by only 2.07 mln barrels

Meanwhile gasoline stocks rose by 3.6 mln barrels last week against forecasts for a 1.7 mln barrel rise, while distillate inventory grew by 0.1 mln barrels against calls for a 1.9 mln barrel decline.

"The major figures were all bearish relative to expectations... About the only supportive element is the drop in refining rates, but no one will care when product stocks are rising," said Citigroup analyst Tim Evans.

At 4.06 pm, New York's WTI crude for March delivery was down 1.03 usd at 87.38 usd per barrel, having dropped 1.61 usd to close at 88.41 usd yesterday.

In London, Brent crude for March delivery was down 68 cents at 88.14 usd per barrel.

Prices were steady before the data release, recouping some of yesterday's losses as players scaled back bets on rising US energy inventory and took the view yesterday's selling was overdone.

However, with US energy inventories clearly on the rise and recession fears still at heightened pitch, there is little to tempt players back to the market on the buy side.

"Sharp declines in the service sector indices in both the US and Europe suggest a further deterioration in the global economic condition, with a subsequent drop in demand being a given for the energy markets," said MF Global analyst John Kilduff.

Yesterday, data from the Institute of Supply Management showed activity in the US services sector slumped to its worst level since March 2003. And in the Eurozone, the PMI services reading plunged to its lowest since July 2003.

Kilduff said the data shows "the economic tumour is clearly metastasizing", threatening oil demand at a time when "supplies have apparently begun to replenish".

Oil prices have now fallen more than 12 pct off a record 100.09 usd set in early January, and many analysts are for now ruling out the upside and instead trying to pick a near term floor in prices.

They note that while the economic contagion from the US has only infected Europe so far, there are possible problems on the horizon in emerging economies also.

China is currently grappling with power shortages that have been exacerbated by the worst winter storms in decades. In addition, it might yet soon have to contend with softness in its export markets.

"What is making the slowdown in the US even more painful is that it is starting to spread... Short term we believe we are on track to test key support at 85.82 usd level basis March WTI," said MF Global analyst Ed Meir.

Should this support level be broken, it would constitute a technical break of the longer term uptrend that has been in place since January 2007, noted Meir, who believes such a scenario is likely.

Looking ahead, it is as yet unclear whether OPEC will attempt to support oil prices by cutting output at its production meeting next month. The cartel has so far resisted such moves.

Yesterday, OPEC Secretary General Abdalla El-Badri said the cartel will roll over production quotas in March if market conditions remain as they are currently.

Others in the cartel have indicated otherwise, however.

WASHINGTON (Thomson Financial) - The companies involved in repackaging and selling mortgages into securities or investing in them are lagging in their response to the coming wave of potential foreclosures, a senior Treasury official warned a group of their executives today.

"Progress is being made, but your industry must move even faster," Under Secretary Robert Steel told the American Securitization Forum (ASF) today. "Each additional day it takes to fully implement (these workouts) we are missing homeowners who could have been helped."

Treasury and the ASF developed a set of fast-track tools for finding homeowners in danger of foreclosure when their mortgages reset to higher rates and helping them in to more affordable mortgages or other financing options.

Steel implied that not enough companies are using the plan, and "we expect your industry to hold to its commitment to help more homeowners, faster, by using the ASF framework, and we look forward to seeing the measurements of your success."

Steel's prod to faster action was similar to one made by Federal Reserve Governor Randall Kroszner to the same group on Monday.

While mortgage securitization fostered a greater flow of capital into housing and made home ownership possible for many more people, Steel also said there was a downside to the innovation.

"We must be honest and admit some malfeasance," he declared. "It is clear that in some instances market participants acted inappropriately." Market participants and regulators both have to commit to a reassessment of some practices that had become business as usual in the mortgage industry, Steel said, and that has begun.

WASHINGTON (Thomson Financial) - Federal Reserve Board Chairman Ben Bernanke will meet with Senate Banking Committee Chairman Christopher Dodd of Connecticut on Wednesday morning to discuss "solutions to the downturn in the US economy."

According to a statement released by Dodd, the two will also discuss the ongoing housing crisis and "recent volatility in US financial markets."

LONDON (Thomson Financial) - Oil prices tumbled by over 2 usd on stock market and dollar weakness and ahead of a weekly report due tomorrow expected to show US crude stocks are growing.

More disappointing data from the US, the world's largest economy, exacerbated price-drops already seen in the earlier part of the session. Futures accelerated to the downside as data showed a surprise contraction in non-manufacturing activity which raised concerns over a slowdown in demand.

The strength prices had garnered yesterday, from Middle East and Nigerian geopolitical tensions and from a statement from the White House announcing it will buy more barrels for the US Strategic Petroleum Reserve, faded. Meanwhile thick fog which slowed crude-carrying ships into the Houston Channel cleared -- helping the supply picture today.

"The petroleum markets are coming under renewed selling ... as a rebound in the US dollar and weakness in the stock market present a consistent bearish picture, and traders are anticipating another week of typical seasonal data in Wednesday's (US inventory) data," said Citigroup analyst Tim Evans.

The US Department of Energy's statistical wing, the Energy Information Administration, will release the weekly figures at 3.30 pm London time tomorrow.

In the week to Feb 1, crude oil stocks will have risen 2.07 mln barrels, gasoline will be up 1.7 mln barrels while distillate inventory, which includes heating oil, will have dropped by 1.9 mln barrels, according to analysts polled by Thomson Financial News.

In recent weeks oil has tracked volatile equity markets. Worries of a global slowdown in growth has seen oil lose some 10 pct since hitting a record 100.09 usd at the start of this year.

"The sharp deterioration in the recent US macro statistics will remain the predominant influence on energy prices over the short-term," said MF Global analyst Ed Meir. "Given how weak the recent stats have been looking thus far, and the potential drag they could have on energy demand, sizable price rallies in crude still look very suspect to us and should be sold into."

Iraqi Oil Minister Dr Hussain al-Shahristani, on the other hand, today said OPEC is well aware of a US slowdown, but reckons demand for crude oil will not be hurt in the meantime as Asia's appetite is not likely to abate.

"The indication to us is that there will be a slowdown in the United States. We're not sure if there is going to be a recession," he told Thomson Financial News on the sidelines of a London conference. "We don't think a slowdown in the US will have a significant effect on the demand for oil, particularly because of growth in east and south Asia."

At 4.05 pm, New York's WTI crude for March delivery was down 2.17 usd at 87.85 usd per barrel.

In London, Brent crude for March delivery was down 2.05 usd at 88.41 usd per barrel.

Looking ahead, all eyes will be fixed on equity market volatility which is likely to spill into commodities as traders try to cover losses and hedge against weakness. On the fundamental side, the OPEC cartel will hold a meeting on March 5 to decide on supply levels.

At its gathering last Friday ministers left output unchanged. Officials are sending mixed signals to the market about the next meeting and there seems to be no consensus yet over the decision.

Kuwait has said an increase is on the cards while Venezuela and Iran are likely to support a cut. Others, meanwhile, including Saudi Arabia, the defacto head of OPEC, have said it is too early to reach a decision on output and that stock levels must be monitored in the weeks ahead of the meeting.

LONDON (Thomson Financial) - The dollar rebounded against the euro and the pound, with the falls in the wake of a woeful survey on US services sector activity proving short-lived on the widely accepted view that the slowdown is not confined to the US.

The US ISM non-manufacturing business activity index tumbled to 41.9 in January from 54.4, confounding forecasts for a much smaller fall to 53.0 and the worst reading since the aftermath of the Sept 11, 2001, terrorist attacks. The new composite index -- derived from detailed questions on new orders, employment and so on -- was only a little better, falling to 44.6.

The fall also takes the index way below the 50 level that marks contraction in the sector.

"While today's report is the second major confirmation that the US economy is in recession, the US dollar remains little fazed on the premise that the US slowdown is less likely to be isolated," said Ashraf Laidi at CMC Markets.

Earlier today, the PMI index on euro zone services showed the sector close to contraction in January, with the final estimate revised down sharply to 50.6, the weakest level in four and a half years.

The euro fell to a 12-day low against the dollar of 1.4630 usd after short-lived rises in the wake of the US ISM release.

With renewed falls on equity markets and a rise in risk appetite, however, one currency to benefit was the low-yielding yen, often seen as a default safe-haven currency, along with the Swiss franc.

"Renewed declines in equities are expected to drag down risk appetite, which should further weigh on the high yielding currencies against the dollar, leaving dollar/yen as the main dollar pair under pressure," Laidi said.

The market will also be keeping half an eye out for the results in the US primaries later tonight.

London 1550 GMT London 1248 GMT

US dollar

yen 106.85 down from 107.46

sfr 1.1011 down from 1.1026

Euro

usd 1.4644 down from 1.4681

stg 0.7452 down from 0.7459

yen 156.40 down from 157.79

sfr 1.6127 down from 1.6189

Sterling

usd 1.9646 down from 1.9680

yen 209.77 down from 211.48

sfr 2.1628 down from 2.1697

Australian dollar

usd 0.8966 down from 0.9026

stg 0.4565 down from 0.4585

yen 95.77 down from 96.98

LONDON (Thomson Financial) - Gold dipped in late afternoon trade as the dollar rallied against the major currencies in the wake of poor European PMI data, shrugging off a large and unexpected drop in US services sector activity.

Gold has posted several days of losses as investors took profits after its recent sharp rally. At its high, gold was trading some 11 pct above its end-December level -- amid dollar weakness, turbulence in the equity markets and the threat of a US recession.

A bounce in the dollar today has added further pressure to gold prices. The precious metal typically benefits from a weaker dollar, as it is seen as an alternative investment to the greenback.

A decline in oil prices is also undermining sentiment towards gold. Stronger oil is seen as an early indicator of rising inflation, against which the precious metal is often bought as a hedge.

At 3.37 pm, spot gold was trading at 889.68 usd an ounce against 894.80 usd in late New York trade yesterday. On Friday it hit a record high of 936.60 usd.

"Gold prices probed much lower," said Kitco Bullion Dealers analyst Jon Nadler. "As if heeding yesterday's bullish forecasts, the US dollar surged ahead and overcame the 76 mark on the index, while crude oil was seen dropping nearly one dollar to near 89 usd per barrel."

"The yellow metal is now poised to retrace its path to possibly the 850 usd area, although it could also encounter some buying if it reaches the 870 usd level," he added.

Platinum meanwhile was trading at 1,776 usd an ounce, against 1,795 usd an ounce yesterday. The metal hit an all-time high of 1,810 usd in overnight trade on supply outages in major producer South Africa, though profit-taking has since pushed it lower.

A number of major platinum producers were forced to close operations in South Africa after state electricity supplier Eskom asked them late last month to curtail their power consumption. Eskom said it could not guarantee electricity supply if usage was not cut.

"Although Eskom reinstated authority for mines to increase power loads from 80-90 pct, not all producers have been able to ramp up production to normal capacity and furthermore Eskom is unable to guarantee power supply," said analysts at Barclays Capital.

"We forecast platinum prices to average 1,700 usd an ounce in the first quarter of 2008, supported by a market that is set to remain in heavy deficit this year, exacerbated by the historically low levels of inventory."

South Africa is the source of around three-quarters of global output of the white metal.

Among other precious metals, palladium was trading at 408 usd against 425 usd, while silver was at 16.37 usd against 16.74 usd.

FXstreet.com (Barcelona) – New orders for manufactured products have grown slightly below expectations but yet at their fastest pace since records are taken in 1992, posting their sixth increase of the last seven months, according to data released by the Commerce Department.

In December, orders for manufactured gods have increased 2.3% from November to $441,61 billion following a 1.7% monthly rise in November, revised up from the previously estimated 1.5% rise. December’s increase, although high, did not meet the experts forecasts, which had advanced a 1.5% increase.

Shipments, however have fallen 0.3% in the month for the first time in the last four months, while unfilled orders have posted a 2.5% rise.

Orders for manufactured durable goods have increased 5.0% in December, following a 0.5% increase in November, non durable good orders have increased 0.4%.

LONDON (Thomson Financial) - Platinum stayed close to an all time high struck earlier today as South African mining woes squeezed supply, while gold traded some 4 pct below a record hit late last week.

Platinum also dragged palladium up to a six-year high as the two metals can be used for the same purposes -- jewellery manufacturing and in catalytic converters.

"The most important recent development in the precious metals market is the power crisis in South Africa, which has interrupted mining operations and which, based on our estimates, will visibly alter the supply/demand balances for gold and (especially) platinum this year," said HSBC analyst James Steel, who today upgraded the bank's price forecast for 2008 to 1,650 usd from 1,550 usd.

By 2.32 pm platinum was at 1,775 usd per ounce against 1,769 usd in late New York trades Friday. Earlier this morning, the metal made a new all time high of 1,792.50 usd per ounce.

South African mine production and precious metal output still remains vulnerable to the national power company Eskom's implemented powercuts. Eskom last week said it was able to supply 80 pct of power to gold, platinum, diamond and coal miners having initially promised to meet 90 pct of their needs.

South Africa, the world's biggest platinum producer, supplies around 80 per cent of global platinum output.

"We see yet more upside for platinum," said Standard Bank analyst Walter De Wet.

Platinum has gained some 20 pct in around two weeks.

"We estimate the platinum market will be in a substantial deficit in 2008 due to South Africa's power-related output issues and increasing automotive demand," said Steel at HSBC.

Palladium was trading at 412 usd against 414 usd per ounce, having earlier hit 420.50 -- a six year high.

"Although demand from the automotive sector continues to be impressive, we expect the palladium market to remain mired in surplus as a result of the steady sale of Russian stocks," said Steel.

Gold was trading at 892.43 usd per ounce against 908.80 usd in late New York trades Friday. On Friday gold hit a record high of 936.60 usd.

"There are some downside risks to the gold spot price with futures markets pricing in further gains in the Dow Jones and a decline in net long speculative positions in gold," said De Wet.

Gold could move lower if equity markets rebound as some market players will sell off safer assets and increase their exposure to risk.

"Stock markets have recovered somewhat from their recent battering and markets in Asia and Europe were up overnight and today. The primary reason for gold's weakness remains that it had become overbought in the short term and was due a correction, in the same way the stock markets were oversold in the short term and due a correction," said Mark O'Byrne, director at Gold and Silver Investments.

In other precious metals, silver fell to 16.40 usd an ounce against 16.82 in late New York trades Friday.

LONDON (Thomson Financial) - Global oil production will struggle to cope with rising demand over the next decade, according to experts gathered today at international think tank Chatham House, for a conference focusing on Middle East energy supplies.

One speaker noted that over the next eight years the world needs to discover and develop an extra 37.5 mln bpd to meet rising demand and diminishing returns from existing oil fields, but that global production is unlikely to increase by even half that amount in the same timeframe.

"China and India are transforming the global energy system by their sheer size and growth," the speaker said.

"Oil demand is set to grow significantly under any plausible scenario. (But) there will be real difficulty in getting production above 100 mln bpd."

Global oil production is currently around 86 mln bpd, but with many existing oil fields given lower returns in recent years, and new reserves becoming more difficult to source, some analysts are concerned oil markets could tighten significantly as rising demand outstrips supply.

Analysts speaking at the event have predicted that national oil companies -- such as PetroChina, Brazil's Petrobras, or Russia's Gazprom -- will take on an increasingly significant role in the market in the coming years.

As oil prices have increased, countries like Russia have tightened the screws on foreign investors, as they aim to take greater control of their country's natural resources.

However, analysts have cautioned against freezing out large international oil companies, instead encouraging a cooperative approach to addressing a potential short-fall in global supplies, saying national companies need to tap the expertise and technology of their private sector rivals.