Exchange traded funds (ETFs) showed modest gains at the open, but rising oil prices quickly turned the markets south.

  • Crude-oil futures climbed toward $107 a barrel as fighting in Libya raged on, adding to concern that popular unrest will spread to other oil-producing states in the region. “As the violence rages on in Libya, there are mounting fears that the country’s supply disruptions will be prolonged and that other producers in the immediate vicinity will suffer similar outages due to political unrest,” said strategists at Barclays Capital. Replacement of Libyan output, crippled by the hostilities, is eating into spare global production capacity, they said, which may be alleviated in the short term by an increase from Saudi Arabia or the release of U.S. reserves. The Direxion Daily Energy Bull 3x Shares ETF (NYSEArca: ERX) jumped over 3% early Monday.
  • Moody’s slashed Greece’s credit rating by three notches on Monday due to an increased default risk, raising the spectra that the distressed eurozone sovereign may have to restructure its debt, perhaps before 2013. The move increased pressure on eurozone leaders to ease repayment terms on bailout loans to Athens, just as Germany and its allies seem to have turned their backs on more radical steps to help it reduce its debt through bond purchases or buy-backs. Trouble in Greece could hurt confidence in other eurozone ETFs, such as the iShares MSCI Spain Index Fund ETF (NYSEArca: EWP) is up about 1.5% so far today.
  • The London Stock Exchange is eyeing a takeover of its rival Nasdaq just weeks after announcing a merger with the Toronto stock exchange, the Sunday Times reported. Although the companies have not held talks about a three-way tie-up, LSE and its Canadian counterpart expect to make their move later this year following the closing of their own deal, the newspaper said without citing sources. A source told Reuters previously that Nasdaq, left out of the recent merger frenzy, was looking at its alternatives, including the possibility of teaming up with CME Group Inc or Intercontinental Exchange Inc to bid on NYSE. The iShares Dow Jones US Brokers-Dealers ETF (NYSEArca: IAI) is flat on Monday.
  • Asian stock markets were mostly lower Monday as higher oil prices continued to hurt sentiment, while the resignation of Japan’s foreign minister added to the gloom in Tokyo. Japanese stocks were dragged lower by higher oil prices as well as growing domestic political turmoil. Japan’s Foreign Minister Seiji Maehara, one of the country’s more popular politicians, resigned Sunday over illegal political donations from a foreign national. “There is caution over the risk of a (further) downgrade in Japan’s sovereign debt rating if political uncertainty deepens,” said Hisatsune Kobayashi, a senior market analyst at Nikko Cordial Securities. iShares MSCI Japan (NYSEArca: EWJ) is down 0.5% so far today.

Gregory A. Clay contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.