* Copper stocks at highest since mid-July

  * Inflation concerns remain due to oil rise

  * Coming Up: U.S. private sector employment data -1315 GMT

 

  (Recasts, updates prices, changes dateline from SINGAPORE)

  By Melanie Burton

  LONDON, March 2 (Reuters) - Copper fell on Wednesday on a firmer dollar and concerns a higher oil price will impact on global growth, while stocks of the metal used in construction and power continued to build, signalling weak demand.

  Three-month copper on the London Metal Exchange fell to $9,837 a tonne by 1124 GMT, from $9,885 at the close on Tuesday, when it snapped a three-day winning streak.

  " Copper is seen at risk of a correction short term as rising LME inventories suggest China is drawing down its own stockpiles rather than turning to the international market," said Stephen Briggs, an analyst at BNP Paribas.

  Copper stocks rose on Wednesday to their highest since mid-July last year, resuming an uptrend in place more or less since December.

  As tensions in the Middle East and North Africa simmered, Brent crude rose towards $116 a barrel, prompting concerns about high inflation.

  " The moderate fall in (copper) prices continues this morning. This is probably largely due to high and still rising oil prices, which are fuelling inflation concerns, which could in turn lead to a weakening of global growth," Eugen Weinberg, an analyst at Commerzbank, wrote in a note.

  Faltering risk appetite supported the dollar, keeping it off a 3-1/2 month low versus a basket of currencies.

 

  EIGHT MONTH HIGHS

  Copper stocks rose by 3,275 tonnes, the latest data showed, bringing LME inventories to 423,550 tonnes, the highest since mid-July 2010.

  Stocks have climbed by a fifth since mid-December, mostly into LME locations in Asia, as metal is diverted from Chinese ports that are already bulging with stocks. " Stockpiles at exchanges remain elevated after sizeable inflows in January and February," said Credit Suisse Private Banking in a note.

  " Accordingly, we expect industrial metals to have further upside once inventories start to drop more convincingly again."

  Aluminium output from top producer China could rise by 24 percent this year to 20 million tonnes, an official of the China Nonferrous Metals Industry Association said on Wednesday.

  Global aluminium supply this year is expected at around 45 million tonnes. This is around one million tonnes more than an estimate from Aluminum Corp of China Ltd, the world's most valuable aluminium company, made earlier this week.

  " The difference of a million tonnes is China producing more or less than it consumes. I would say China is going to remain roughly self sufficient for the coming years. This is certainly a fairly downbeat statement," said Briggs of BNP Paribas.

  Aluminium traded at $2,585 a tonne, down in line with the rest of the complex from $2,610 at the Tuesday close.

  The power-intensive metal hit a 2-1/2 year peak the prior session at $2,617.25 on the back of rising prices of oil.

  Across other metals, zinc traded at $2,481 a tonne, from $2,515, while lead stood at $2,529 from $2,555.

  Stainless steel material nickel slipped to $28,400 from $28,775 and tin edged down to $31,650 from $32,200.

  Metal Prices at 1120 GMT Comex copper in cents/lb, LME prices in $/T and SHFE prices in yuan/T Metal Last Change Percent Move End 2010 Ytd Percent

  move COMEX Cu 446.80 -3.25 -0.72 444.70 0.47 LME Alum 2610.00 0.00 +0.00 2470.00 5.67 LME Cu 9859.00 -1.00 -0.01 9600.00 2.70 LME Lead 2554.50 -0.50 -0.02 2550.00 0.18 LME Nickel 28770.00 -5.00 -0.02 24750.00 16.24 LME Tin 32200.00 0.00 +0.00 26900.00 19.70 LME Zinc 2515.00 0.00 +0.00 2454.00 2.49 SHFE Alu 16990.00 0.00 +0.00 16840.00 0.89 SHFE Cu* 74700.00 700.00 +0.95 71850.00 3.97 SHFE Zin 19235.00 -80.00 -0.41 19475.00 -1.23 ** Benchmark month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07 (Writing by Sue Thomas Editing by Anthony Barker)

  2011-03-02 19:44:15

(Add details)

  DHAKA, March 2 (Reuters) - Bangladesh's central bank said on Wednesday it had removed Nobel laureate Muhammad Yunus from the post of managing director of microlender Grameen Bank, following allegations of irregularities in its operations.

  " We have delivered a letter to the Grameen Bank that Muhammad Yunus has been removed," said the central bank governor's spokesman, A.F.M. Asaduzzaman.

  Yunus, 70, set up Grameen Bank and has been its managing director since 2000. Lauded abroad by politicians and financiers, he has been under attack from the government of Prime Minister Sheikh Hasina since late last year, after a Norwegian documentary alleged Grameen Bank was dodging taxes.

  Yunus has denied any financial irregularities and his supporters say he is being discredited by the government because of a feud with Hasina dating back to 2007, when he tried to set up a political party while Bangladesh was ruled by an interim military government.

  On Tuesday, a central bank official said a letter had been sent to the Finance Ministry demanding Yunus retire immediately because he had been in his post at Grameen for nearly a decade longer than the law allowed.

  The official retirement age of managing directors at commercial banks is 60.

  Yunus has said the bank's board, which is mainly made up of borrowers, allows him to stay on as long as he is able to perform his duties.

  Last month, Finance Minister Abul Maal Abdul Muhith said Yunus should step down, as he was now " old and we need to define the bank's role and bring it under close regulation" .

  Hasina herself has called Yunus a " blood-sucker of the poor" and sharply criticised Grameen Bank's microlending practices, especially after the Norwegian documentary that alleged the bank had for tax purposes shifted funds provided by Norway's aid agency in the 1990s from one legal entity to another.

  The documentary sparked criticism in Bangladesh and abroad of Yunus, whose bank has provided about $10 billion in small loans to people, most of them women, to fund businesses and help them escape poverty.

  A Norwegian government investigation into the allegations, however, found no evidence of misuse of funds or corrupt practices.

  Yunus has been summoned to appear in three separate court cases involving Grameen Bank in Bangladesh over the past month. (Reporting by Serajul Islam Quadir and Ruma Paul Writing by Anis Ahmed Editing by Sugita Katyal)

 

  First Published: 2011-03-02 18:47:31
Updated 2011-03-02 19:44:14

* Cuts 2011 net profit forecast to $8.6 bln from $9.1 bln

  * 2010 profit seen at $16 bln vs $15.1 bln given in Dec

  * Sees net margins at 1.4 pct in 2011 vs 2010 2.9 pct (Adds details, quotes)

  By Jonathan Lynn

  GENEVA, March 2 (Reuters) - Global airline net profits will halve this year as rising costs, especially oil prices, offset increasing demand, the industry body IATA said on Wednesday.

  The result would be a net profit margin this year of only 1.4 percent -- dismissed by IATA Director-General Giovanni Bisignani as more worthy of a charity than an industry -- down from 2.9 percent in 2010.

  Bisignani told a news conference that increased taxes such as levies on ticket prices were another threat to the struggling industry, which he said was not sustainable in the long term, and called on governments to review regulations to underpin airline profitability.

  " We are constantly walking on a tightrope with very thin margins, and there is no buffer," he said. " This industry is very, very fragile."

  The International Air Transport Association, whose 230 members include Singapore Airlines and Deutsche Lufthansa, now expects global net profit to be $8.6 billion this year, down from $9.1 billion forecast in December.

  Net profit is estimated at $16 billion in 2010, revised up from the $15.1 billion estimate in December.

  Those profits come on revenues forecast at $594 billion this year, up from an estimated $552 billion in 2010. Revenues stand against industry debts of $210 billion, Bisignani noted.

  IATA's forecasts assume an average oil price of $96 per barrel for Brent crude this year, up from $84 forecast in December, and $$79.4 a barrel in 2010.

  As a result the industry's fuel bill will rise to $166 billion this year -- 29 percent of total costs -- from $139 billion or 26 percent in 2010.

  Bisignani said every $1 increase in the price of a barrel of oil adds $1.6 billion in costs to airlines, which are estimated to have hedged 50 percent of their fuel purchases this year.

  IATA declined to speculate whether the latest oil price increases would lead to fuel surcharges on tickets, as that is a matter for its individual members.

  The improving global economy will increase demand for airline products, with passenger growth expected to be 5.6 percent this year, up from December's 5.2 percent increase, while cargo demand -- an important indicator of world trade -- is seen rising 6.1 percent, up from 5.5 percent in December.

  The IATA global forecast includes wide variation in airline performance by region, with carriers in the Asia-Pacific region expected to produce a net profit margin of 4.6 percent. Airlines in the region benefit from the strong economy, but have hedged fuel prices relatively loss than those in other countries.

  European airlines are the least profitable of the major regions.

  (Editing by Toby Chopra)

  2011-03-02 19:43:10

CAIRO (Reuters) - The Libya crisis is an internal Arab affair and there should be no foreign intervention, the Iraqi foreign minister told the opening session of an Arab League meeting in Cairo on Wednesday.

  Iraqi Foreign Minister Hoshiyar Zebari, delivering the opening remarks at the Arab foreign ministers meeting in Cairo, said the Libyan leadership must make brave decisions to stop violence and respect the " legitimate rights" of the people.

  He called on the ministers to stand in silence in memory of Arabs killed in a wave of pro-reform protests that have swept the leaders of Egypt and Tunisia from power and are challenging the rule of others in Bahrain, Libya and Yemen.

  " We hope the Libyan people can overcome these difficult conditions, and that the Libyan leaders take brave stands to stop bloodshed and respect the legitimate desires and rights of its people to live in a free, democratic nation," Zebari said.

  He said the Arabs confirmed their " desire for no foreign intervention" in Libya.

  Wednesday's meeting is expected to reiterate the body's condemnation of Gaddafi, but the draft resolution will also stress " the unity and integrity of Libyan soil."

  The league had suspended the Libyan delegation's participation in the Cairo-based body, as condemnation for the violent crackdown Gaddafi forces were using to quell popular unrest.

  (Reporting by Dina Zayed and Tom Perry)

  2011-03-02 19:22:02

JAKARTA, March 2 (Reuters) - Indonesian airport operator PT Angkasa Pura I plans to build new airport in Yogyakarta with India's GVK Power & Infrastructure Ltd worth 5 trillion rupiah ($567.4 million), an Angkasa Pura's executive said on Tuesday.

  The project is a part of preliminary agreement signed by both parties in January this year to invest between $3 - $5 billion over the next four years to build international airports in Bali and Java.

  " We're going to set up a joint-venture for the purpose next year," said Tommy Suetomo, Angkasa Pura's chief executive officer.

  Inadequate infrastructure in Southeast Asia's largest economy is seen as both a hurdle to growth and a cash-making opportunity, with the government looking for the private sector to fund two-thirds of its needs.

  Indonesia is India's third-largest trading partner in South East Asia and bilateral trade was $10 billion in 2008, according to the Ministry of External Affairs. ($1 = 8,812.500 Indonesian Rupiah) (Reporting by Fathiya Dahrul Writing by Janeman Latul Editing by David Fox)

  2011-03-02 18:47:42

BEIJING, March 2 (Reuters) - Japanese carmaker Mazda Motor Corp said car sales in China fell 29 percent to 9,033 units in February, in part because of the end of government tax incentives for small cars.

  Mazda said year-to-date sales were down 8 percent to 29,074.

  An initiative by Beijing city government to restrict car registration to ease ever-worsening traffic congestion hit Mazda's sales in the city, one of its major markets.

  Both of its two sales affiliates failed to hit their targets, Mazda said, adding the company will take measures to improve their performance.

  Mazda operates a car venture with U.S. peer Ford Motor and Chongqing Changan Automobile Co. It also has Mazda models with FAW Group via a production license pact. (Reporting by Fang Yan and Ken Wills Editing by Dan Lalor)

  2011-03-02 19:23:30

ABU DHABI (Reuters) - The United Arab Emirates, watching as Arab unrest spreads to nearby Gulf countries, will invest $1.6 billion (980.6 million pounds) to improve infrastructure in less developed emirates, state media said on Wednesday.

  The decision to expand water and electricity networks by President Sheikh Khalifa bin Zayed al-Nahayan, came after he saw living conditions on a tour of the world's third largest oil exporter last month, the state news agency WAM reported.

  " Electricity supply is to be provided to buildings and shops belonging to citizens in the northern emirates, the president ordered," WAM said.

  Revolts against oppressive leaders and economic hardships have been sweeping through the Arab world over the past two months, ousting presidents of Egypt and Tunisia. They now challenge regimes in Libya as well as nearby Bahrain and Oman.

  The UAE, the second largest Arab economy, has escaped the unrest so far. Its relatively small local population enjoys one of the world's highest economic outputs per capita at over $47,000.

  " There is unrest in so many Arabic countries. The issue is causing discomfort and has been addressed in the UAE twenty-five to thirty years ago," said Khaled Abdulla al-Qubaisi, a senior advisor at Mubadala, an investment vehicle of the Abu Dhabi government.

  " Basic necessities are provided for jobs, health, good quality of life in Abu Dhabi and the UAE. We don't see that as an issue," he said on the sidelines of a conference in Abu Dhabi earlier on Tuesday.

  Potential for unrest would most likely come from the five northern emirates, whose citizens have benefited less from capital Abu Dhabi's vast oil wealth or trade and property-fuelled development in business hub Dubai.

  Ras al-Khaimah, one of the northern emirates, has seen small protests in past years but they were quickly crushed by Abu Dhabi security forces. The emirate sits on the Strait of Hormuz, through which 40 percent of the world's seaborne oil passes.

  The Abu Dhabi Water and Electricity Authority was instructed to supply the Federal Electricity and Water Authority with around 1,300 megawatts of power to meet projected demand.

  Instructions to build a 100 km water pipeline costing 900 million dirhams from northern towns of Kalba to Dibba has been ordered, as well as a 60 km pipeline worth 300 million dirhams in the Umm al-Quwain emirate, WAM said.

  A range of supermarkets in the UAE have agreed with the economy ministry to cut their prices for food and other essential commodity items by up to 40 percent for one month, an official said on Tuesday.

  (Reporting by Martina Fuchs and Stanley Carvalho)

  2011-03-02 18:44:26

By Maria Golovnina and Michael Georgy

  TRIPOLI (Reuters) - Forces loyal to Muammar Gaddafi attacked an important town in Libya's east on Wednesday, sparking a rebel warning that foreign military help might be needed to " put the nail in his coffin" and end his long rule.

  Government troops briefly captured Marsa El Brega, an oil export terminal, before being driven back by rebels who have controlled the town 800 km east of the capital Tripoli for about a week, rebel officers said.

  The assault appears to be the most significant military operation by Gaddafi since the uprising began two weeks ago and set off a confrontation that Washington says could descend into a long civil war unless the veteran strongman steps down.

  The rebels said they would probably seek foreign military help, a sensitive topic for Western countries uncomfortably aware that Iraq suffered years of bloodletting and al Qaeda violence after a 2003 U.S.-led invasion toppled Saddam Hussein.

  There was no independent confirmation of the reports about the conflict in Marsa El Brega, first reported to be in rebel hands on February 24 as protests against Gaddafi spread rapidly around the east of the giant country, Africa's fourth largest.

  " We are probably going to call for foreign help, probably air strikes at strategic locations that will put the nail in his (Gaddafi's) coffin," Mustafa Gheriani, a spokesman for the rebel February 17th Coalition, told Reuters.

  " They tried to take Brega this morning, but they failed. It is back in the hands of the revolutionaries. He (Gaddafi) is trying to create all kinds of psychological warfare to keep these cities on edge," he said.

  There are fears that the uprising, the bloodiest yet against long-serving rulers in the Middle East, is causing a major humanitarian crisis, especially on the Tunisian border where thousands of foreign workers are trying to flee to safety.

  Gaddafi is defiant and his son, Saif al-Islam, has warned the West against launching military action. He said the veteran ruler would not relinquish power or be driven into exile.

  Across Libya, tribal leaders, officials, military officers and army units have defected to the rebel cause and say they are becoming more organised. Tripoli is a stronghold for Gaddafi in this oil-producing north African state.

  " We are going to keep the pressure on Gaddafi until he steps down and allows the people of Libya to express themselves freely and determine their own future," Susan Rice, the U.S. ambassador to the United Nations, told ABC's " Good Morning America."

  Captain Faris Zwei, among officers in the east who joined the opposition to Gaddafi, said there were more than 10,000 volunteers in Ajdabiyah, a short distance from Marsa El Brega.

  " We are reorganising the army, which was almost completely destroyed by Gaddafi and his gang before they left," he said. " We are reforming, as much as we can, the army from the youth that took part in the revolution."

  Two amphibious assault ships, USS Kearsarge, which can carry 2,000 Marines, and USS Ponce, entered the Suez Canal on Wednesday en route to the Mediterranean. The destroyer USS Barry moved through the canal on Monday as part of efforts to increase diplomatic and military pressure on Gaddafi to quit.

  The two ships entered through the southern end of the canal, an official said, adding that they were expected to pass through by 3:30 p.m. (1:30 p.m. British time) or 4:00 p.m. local time.

  ARAB LEAGUE POISED TO REJECT FOREIGN MILITARY ROLE

  Arab League foreign ministers will meet on Wednesday in Cairo to discuss a draft resolution rejecting foreign military intervention in Libya, the deputy secretary general of the league said.

  The repositioning of U.S. ships and aircraft closer to Libya is widely seen as a symbolic show of force since neither the United States nor its NATO allies have shown any appetite for direct military intervention in the turmoil that has seen Gaddafi lose control of large swaths of his country.

  " We are looking at a lot of options and contingencies. No decisions have been made on any other actions," Defence Secretary Robert Gates said, noting the United Nations had not authorised the use of force in Libya.

  Italy said it was sending a humanitarian mission to Tunisia to provide food and medical aid to as many as 10,000 people who had fled violence in Libya on its eastern border.

  The U.S. Senate, in a unanimous vote, approved a resolution " strongly condemning the gross and systematic violation of human rights in Libya, including violent attacks on protesters demanding democratic reforms."

  The White House said the ships were being redeployed in preparation for possible humanitarian efforts but stressed it " was not taking any options off the table." Gates said: " Our job is to give the president the broadest possible decision space."

  French Foreign Minister Alain Juppe sounded a note of caution, saying military intervention would not happen without a clear United Nations mandate.

  British Prime Minister David Cameron, who said Britain would work with allies on preparations for a no-fly zone over Libya, said it was unacceptable that " Colonel Gaddafi can be murdering his own people using airplanes and helicopter gunships."

  AFRICANS, ASIANS DESPERATE TO LEAVE LIBYA

  General James Mattis, commander of U.S. Central Command, told a Senate hearing that imposing a no-fly zone would be a " challenging" operation. " You would have to remove air defence capability in order to establish a no-fly zone, so no illusions here," he said. " It would be a military operation."

  Tunisian border guards fired into the air on Tuesday to try to control a desperate crowd clamouring to cross the frontier.

  About 70,000 people have passed through the Ras Jdir border post in the past two weeks, and many more of the hundreds of thousands of foreign workers in Libya are expected to follow.

  At Ras Jdir on the Tunisia border, thousands of Bangladheshi migrant workers, desperate to leave Libya, pressed up against the gates of the frontier crossing, angry at their government for sending no help.

  Groups of West African migrant workers also in the crowd chanted for help and held up the flags of Ghana and Nigeria.

  (Additional reporting by Yvonne Bell and Chris Helgren in Tripoli, Tom Pfeiffer, Alexander Dziadosz and Mohammed Abbas in Benghazi, Yannis Behrakis and Douglas Hamilton Christian Lowe and Hamid Ould Ahmed in Algiers, Souhail Karam and Marie-Louise Gumuchian in Rabat and Samia Nakhoul in London Writing by William Maclean Editing by Giles Elgood)

  First Published: 2011-03-02 06:54:10
Updated 2011-03-02 19:03:39

* Brent crude over $116/bbl on Libya, Mideast worries

  * Market's " fear gauge" jumps 14.5 percent

  * Bernanke says oil unlikely to derail economy

  * Indexes down: Dow 1.4 pct, S& P 1.6 pct, Nasdaq 1.6 pct (Updates VIX, oil prices adds paragraph on crude and stock index futures moves after hours adds paragraph on advancers and decliners)

  By Angela Moon

  NEW YORK, March 1 (Reuters) - Concerns that rising oil prices could hurt economic recovery prompted investors on Tuesday to sell stocks and hedge against further declines.

  The CBOE Volatility Index VIX, Wall Street's so-called fear gauge, jumped 14.5 percent to 21.01 on growing uncertainty about oil. The index measures the cost of using options as insurance against a decline in the S& P 500 index.

  " We've been seeing how quickly the VIX can spike up, and there is no reason to believe that it won't double from where it is now," said Harry Rady, CEO of Rady Asset Management in San Diego, California.

  Brent crude rose above $116 a barrel as supply disruptions persist and political violence spreads in the Middle East and North Africa. Higher oil translates into increased energy and gasoline costs for consumers. For details,

  U.S crude and gasoline futures extended gains in extended-hours trading after data showed domestic crude inventories unexpectedly fell. U.S. stock index futures fell slightly, with S& P futures off 3.3 points.

  Federal Reserve Chairman Ben Bernanke said the recent surge in oil was unlikely to derail the economy, but his comments did little to reassure investors worried that turmoil in the Middle East could hit Saudi Arabia, the world's largest oil exporter. The Dow Jones Transports index fell 2.5 percent.

  Stocks have taken their cue from oil since the start of turmoil in the Middle East and North Africa in January. The S& P had its weakest performance since November last week but still tallied three months of gains.

  The Dow Jones industrial average fell 169.38 points, or 1.39 percent, at 12,056.96. The Standard & Poor's 500 Index dropped 21.04 points, or 1.59 percent, to 1,306.18. The Nasdaq Composite Index lost 44.86 points, or 1.61 percent, to 2,737.41.

  About 8.67 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq, higher than last year's daily average of 8.47 billion. Volume has recently been solid on days when the market falls, but often comes under 7 billion on up days.

  Investors took a cautious stance as cyclical sectors experienced the biggest losses, while defensive sectors such as utilities, healthcare and consumer staples limited losses.

  Wal-Mart Stores Inc and Coca-Cola Co helped the Dow to limit losses. Wal-Mart rose 0.2 percent to $52.06, while Coca-Cola was up 1.5 percent to $64.91.

  Gasoline and heating oil futures each gained about 3.5 percent to $3. The S& P's materials index dropped 2.3 percent while the industrials dropped 2.2 percent. According to AAA, the national average price of regular unleaded gasoline is currently at $3.35 per gallon.

  " The real story is gasoline," said Nick Kalivas an analyst, at MF Global in Chicago. " The market is getting worried that you could see $4 gasoline in the U.S."

  Financial stocks came under pressure after JPMorgan Chase & Co said it could face " material" fines and " significant" legal costs from a wide-ranging probe into the industry's foreclosure practices.

  JP Morgan fell 2.3 percent to $45.60 while the KBW bank index fell 2.3 percent.

  Declining stocks outpaced advancing stocks on the NYSE by a ratio of about 3 to 1, while on the Nasdaq, decliners beat advancers by a ratio of 10 to 3. (Reporting by Angela Moon, Editing by Kenneth Barry)

  2011-03-02 06:35:25

By Maria Golovnina

  TRIPOLI (Reuters) - Libya could descend into civil war unless Muammar Gaddafi quits, the United States said on Tuesday, its demand for his departure intensifying pressure on the long-time leader after news of Western military preparations.

  But Gaddafi remained defiant, dispatching forces to a western border area amid fears that the most violent Arab revolt may grow bloodier and spark a humanitarian crisis.

  His son, Saif al-Islam, warned the West against launching any military action to topple Gaddafi, and said the veteran ruler would not step down or go into exile.

  " Using force against Libya is not acceptable. There's no reason, but if they want ... we are ready, we are not afraid," he told Sky television, adding: " We live here, we die here."

  In Moscow, a Kremlin source suggested Gaddafi, whose authority has unravelled in much of the vast desert country, should step down, calling him a " living political corpse."

  In prepared testimony to U.S. lawmakers in Washington, U.S. Secretary of State Hillary Clinton said: " Libya could become a peaceful democracy or it could face protracted civil war."

  The U.S. ambassador to the United Nations, Susan Rice, said Washington would apply pressure on Gaddafi until he bows out, working to stabilise oil prices and avert a humanitarian crisis.

  She stopped short of saying the Obama administration was ready to impose a no-fly zone over Libya that would prevent Gaddafi using aircraft against rebels fighting against him.

  On Monday the United States said it was moving ships and planes closer to the oil-producing North African state.

  The destroyer USS Barry moved through the Suez Canal on Monday and into the Mediterranean. Two amphibious assault ships, the USS Kearsarge, which can carry 2,000 Marines, and the USS Ponce, are in the Red Sea and are expected to go through the canal early on Wednesday.

  French Foreign Minister Alain Juppe sounded a note of caution, saying foreign military intervention in Libya would not happen without a clear United Nations mandate.

  Prime Minister David Cameron said it was unacceptable that " Colonel Gaddafi can be murdering his own people using airplanes and helicopter gunships."

  General James Mattis, commander of U.S. Central Command, told a Senate hearing that imposing a no-fly zone would be a " challenging" operation that would mean actual attack.

  " You would have to remove air defence capability in order to establish a no-fly zone, so no illusions here," he said. " It would be a military operation -- it wouldn't be just telling people not to fly airplanes."

  Analysts said Western leaders are in no mood to rush into conflict after the troubled, drawn-out involvements in Afghanistan and Iraq.

  " They will be desperate not to place themselves in that situation, unless not doing so would result in even worse massacres," said Shashank Joshi of London's Royal United Services Institute.

  Suspicions grew that Gaddafi, a survivor of past coup attempts, did not grasp the scale of the forces against him.

  " All my people love me," he told the U.S. ABC network and the BBC on Monday, dismissing the significance of a rebellion that has ended his control over much of oil-rich eastern Libya.

  REBELS CLAIM STRENGTH GROWING

  Rebel fighters claimed the balance of the conflict was swinging their way. " Our strength is growing and we are getting more weapons. We are attacking checkpoints," said Yousef Shagan, a spokesman in Zawiyah, only 50 km (30 miles) from Tripoli.

  A rebel army officer in the eastern city of Ajdabiyah said rebel units were becoming more organised.

  " All the military councils of Free Libya are meeting to form a unified military council to plan an attack on Gaddafi security units, militias and mercenaries," Captain Faris Zwei said.

  Rebels guarding a munitions store near Ajdabiyah said they feared a direct hit by Gaddafi's warplanes could cause destruction for miles around.

  But despite the widespread collapse of Gaddafi's writ, his forces were fighting back in some regions.

  A reporter on the Tunisian border saw Libyan troops reassert control at a crossing that was abandoned on Monday, and residents of Nalut, about 60 km (35 miles) from the border, said pro-Gaddafi forces deployed to retake control there.

  Mohamed, a resident of rebel-held Misrata, told Reuters by phone: " Symbols of Gaddafi's regime have been swept away from the city. Only a (pro-Gaddafi) battalion remains at the city's air base but they appear to be willing to negotiate safe exit out of the air base. We are not sure if this is genuine or just a trick to attack the city again."

  Across the country, tribal leaders, officials, military officers and army units have defected to the rebels. Sanctions will squeeze his access to funds.

  BREAD QUEUES

  Tripoli is a clear Gaddafi stronghold, but even in the capital, loyalties are divided. Many on the streets on Tuesday expressed loyalty but one man who described himself as a military pilot said: " One hundred percent of Libyans don't like him."

  There were queues outside bread shops on Tuesday morning. Some residents said many shops were limiting the number of loaves customers could buy.

  In Geneva, Russian Foreign Minister Sergei Lavrov called on world powers to fully implement a U.N. Security Council resolution on Libya. The text, adopted on Saturday, includes a freeze on Muammar Gaddafi's assets and travel ban and refers his regime's brutal crackdown to the International Criminal Court.

  Libya's National Oil Corporation said output had halved because of the departure of foreign workers.

  Brent crude prices pushed above $115 a barrel as supply disruptions and the potential for more unrest in the Middle East and North Africa kept investors on edge.

  At Ras Jdir on the border with Tunisia, Tunisian border guards fired into the air to try to control a crowd of people clamouring to get through a frontier crossing to escape the violence.

  About 70,000 people have passed through the Ras Jdir frontier crossing in the past two weeks, and in the last few days the rate has increased to up to 15,000 per day, said Ayman Gharaibeh, an officer with the U.N. refugee agency.

  Revolutions in neighbouring Tunisia and Egypt have helped to ignite resentment of four decades of often bloody political repression under Gaddafi as well as his failure to use Libyan oil wealth to tackle widespread poverty and lack of opportunity.

  (Additional reporting by Yvonne Bell and Chris Helgren in Tripoli, Dina Zayed and Caroline Drees in Cairo, Tom Pfeiffer, Alexander Dziadosz and Mohammed Abbas in Benghazi, Yannis Behrakis and Douglas Hamilton Christian Lowe and Hamid Ould Ahmed in Algiers, Souhail Karam and Marie-Louise Gumuchian in Rabat and Samia Nakhoul, William Maclean and Alex Lawler in London writing by Andrew Roche editing by Mark Heinrich)

  First Published: 2011-03-02 06:28:55

* Brent crude over $115/bbl on Libya, Mideast worries

  * Market's " fear gauge" jumps 13 percent

  * Bernanke says oil unlikely to derail economy

  * Indexes down: Dow 1.4 pct, S& P 1.6 pct, Nasdaq 1.6 pct (Updates to close)

  By Angela Moon

  NEW YORK, March 1 (Reuters) - Concerns that rising oil prices could hurt economic recovery prompted investors on Tuesday to sell stocks and hedge against further declines.

  The CBOE Volatility Index VIX, Wall Street's so-called fear gauge, jumped 13.1 percent to 20.75 on growing uncertainty about oil. The index measures the cost of using options as insurance against a decline in the S& P 500 index.

  " We've been seeing how quickly the VIX can spike up, and there is no reason to believe that it won't double from where it is now," said Harry Rady, CEO of Rady Asset Management in San Diego, California.

  Brent crude rose above $115 a barrel as supply disruptions persist and political violence spreads in the Middle East and North Africa. Higher oil translates into increased energy and gasoline costs for consumers.

  Federal Reserve Chairman Ben Bernanke said the recent surge in oil was unlikely to derail the economy, but his comments did little to reassure investors worried that turmoil in the Middle East could hit Saudi Arabia, the world's largest oil exporter. The Dow Jones Transports index fell 2.5 percent.

  Stocks have taken their cue from oil since the start of turmoil in the Middle East and North Africa in January. The S& P had its weakest performance since November last week but still tallied three months of gains.

  The Dow Jones industrial average fell 169.38 points, or 1.39 percent, at 12,056.96. The Standard & Poor's 500 Index dropped 21.04 points, or 1.59 percent, to 1,306.18. The Nasdaq Composite Index lost 44.86 points, or 1.61 percent, to 2,737.41.

  About 8.67 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq, higher than last year's daily average of 8.47 billion. Volume has recently been solid on days when the market falls, but often comes under 7 billion on up days.

  Investors took a cautious stance as cyclical sectors experienced the biggest losses, while defensive sectors such as utilities, healthcare and consumer staples limited losses.

  Wal-Mart Stores Inc and Coca-Cola Co helped the Dow to limit losses. Wal-Mart rose 0.2 percent to $52.06, while Coca-Cola was up 1.5 percent to $64.91.

  Gasoline and heating oil futures each gained about 3.5 percent to $3. The S& P's materials index dropped 2.3 percent while the industrials dropped 2.2 percent. According to AAA, the national average price of regular unleaded gasoline is currently at $3.35 per gallon.

  " The real story is gasoline," said Nick Kalivas an analyst, at MF Global in Chicago. " The market is getting worried that you could see $4 gasoline in the U.S."

  Financial stocks came under pressure after JPMorgan Chase & Co said it could face " material" fines and " significant" legal costs from a wide-ranging probe into the industry's foreclosure practices.

  JP Morgan fell 2.3 percent to $45.60 while the KBW bank index fell 2.3 percent. (Reporting by Angela Moon, Editing by Kenneth Barry)

  Updated 2011-03-02 06:14:02