Investors focus on rates changes, rising oil

By Jeremy Gaunt, European Investment Correspondent



LONDON, Aug 21 (Reuters) - Shifting patterns in global interest rates boosted the euro and lifted demand for bonds on Monday, while oil prices climbed as much as $1 a barrel on Iran's nuclear stalemate with the West.



European and Japanese equities fell in thin August trading.



Crude oil prices drove higher as Iran appeared determined to continue with its atomic fuel programme ahead of a deadline from the United Nations to halt nuclear work.



U.S. light crude for September delivery was up 87 cents at $72.01 a barrel, after gaining $1.08 on Friday.London Brent was up $1.13 at $73.45 a barrel.



The United Nations Security Council has demanded Iran halt its nuclear work by Aug. 31, prompting traders to fear the world's fourth biggest oil exporter might retaliate by withholding exports of more than 2 million barrels per day.



Markets were otherwise digesting a raft of U.S. data last week pointing to benign inflation, slowing housing, falling leading indicators and weakening consumer sentiment.



That slew of information led many investors to expect U.S. interest rates to at last stay level while euro zone rates continue to rise.



One impact was to boost the euro.



"A shift in expectations for rate differentials is driving the euro. The market is pricing in a hawkish ECB," said Benedikt Germanier, currency strategist at UBS in Zurich.



The euro hit a lifetime high against the yen of around 49.10 yen and the dollar hit a one-week low against the euro at $1.2906



Demand for bonds also rose as investors considered a slowing global economy and level rates from the U.S. Federal Reserve.



Euro zone government bond futures climbed to a five-month high and yields on both the benchmark 10-year euro zone bond and 10-year U.S. Treasury note yield were down 2.6 basis points.



"The market seems to be increasingly convinced that the Fed is done for this cycle and that boosts bonds," said a London-based trader.



EQUITIES



European shares fell in quiet trading and amid some concern about the rising oil price.



The FTSEurofirst 300 index of leading European shares was down 0.35 percent and the narrower DJ Stoxx 50 index lost 0.54 percent.



Earlier, Japan's Nikkei average fell 0.85 percent as investors grabbed profits from blue-chip stocks seen as having risen too high too fast.



The sell-off came after a four-week advance by the benchmark Nikkei in which it added nearly 1,300 points.

The Nikkei fell 136.94 points to 15,969.04, while the broader TOPIX index lost 1.05 percent to 1,624.21.