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. Last Updated: 07/27/2016

Stocks Fall, Oil Rises as Hope Fades

LONDON -- Hopes on financial markets for a quick end to the war in Iraq faded Monday, hitting stocks, sending investors back into safe-haven bonds and raising oil prices.

The dollar slipped against major currencies and gold rose more than $3 an ounce.

"Last week the market assumed war would be over and done and dusted within a week," said Rupert Thompson, global equity strategist at E*Trade Securities. "Now it's more likely to be weeks and a messy fight in Baghdad likely."

After days of unbroken successes and minimal setbacks, U.S. and British troops endured their heaviest combat casualties Sunday in their war to overthrow Iraqi President Saddam Hussein and were facing stiffening resistance.

A defiant Hussein appeared on Iraqi television on the fifth day of the war, hailing his military's efforts to resist the U.S.-led attack to oust him and promising victory.

Stocks had rallied across the world last week, safe-haven instruments lost favor and oil prices plummeted as U.S.-led forces appeared to be making progress in their desert campaign.

But it was a reverse Monday as markets became jittery about the length and depth of the conflict. "The market had factored in the chances of this war being a quick one and any volatility that we're seeing in the market is coming from a change in that perception," said one Madrid-based bond trader.

Oil rose around 2 percent from its four-month low as the war in the oil-rich nation brought another night of bombing to Baghdad.

U.S. light crude oil was up 36 cents a barrel to $26.54, but remained far off recent 12-year highs near $40 after slumping as much as 30 percent last week.

Brent crude was up 39 cents at $24.66 a barrel.

"The oil market has been behaving as if peace has broken out but the level of Iraqi resistance so far suggests the war could drag on, with consequences for oil prices," Adam Sieminski, oil analyst at Deutsche Bank, said over the weekend.

European shares tumbled. The pan-European FTSE Eurotop 300 index was off 2.75 percent and the DJ Euro Stoxx 50 lost 3.13 percent.

Analysts said some of the sell-off was related to profit taking after gains of as much as 19 percent since March 12.

"Given the size of gains in the last week or two, the market was overbought and due for a correction even if the war had not turned sour," said E*Trade's Thompson said.

Earlier, Tokyo's Nikkei stock average jumped 2.9 percent in a delayed reaction to gains late last week on Wall Street, as Japanese markets reopened after a holiday Friday. The Nikkei rose 240 points to 8,435.07.

Euro zone government bond yields fell sharply as investors bought safe-haven debt.

The greenback slipped more than 1 percent against the euro to trade at $1.0637 and was down more than half a percent against the Japanese yen at 120.53 yen.