San Francisco Frontiers - Oil spikes while divided Federal Reserve keeps interest rates unchanged

Brent oil futures got within striking distance of $120 a barrel before retreating a bit as markets girded for a much longer Middle East war.

The United States could extend its naval blockade of Iran for months longer, oil executives were told in a meeting with Trump, an official said, after press reports that he had rejected Iran's latest proposed deal to reopen the Strait of Hormuz.

"The market is increasingly shifting towards a view that no longer expects a quick and lasting peace, nor an immediate reopening of the Strait of Hormuz," said Arne Lohmann Rasmussen, chief analyst at Global Risk Management.

Brent finished up 6.1 percent at $118.03 a barrel.

As expected, the Fed kept interest rates unchanged for a third straight meeting as central bankers grappled with uncertainty stemming from the Middle East war.

"Inflation is elevated, in part reflecting the recent increase in global energy prices," the central bank said.

Fed Chair Jerome Powell said he plans to stay at the central bank as a governor after his term as chair ends. At a press conference, he congratulated his expected successor, Kevin Warsh, for clearing a key hurdle in a rocky confirmation process.

But Wednesday's vote pointed to division among policymakers as higher oil prices add to inflation fears.

The Fed's policy announcement said three Fed officials who backed the pause on rates "did not support inclusion of an easing bias in the statement at this time."

A fourth voting member, Stephen Miran, had sought a quarter-point cut, giving Wednesday's gathering the largest number of dissenting votes since 1992.

The dissents point to uncertainty about the path of Fed policy "until the Middle East conflict is decidedly over," said Jeffrey Roach, chief economist for LPL Financial.

"Expect more dissents in the near term and expect more volatility in the rates markets," Roach said in a note. "The incoming chair will face challenges building consensus around a new policy regime."

Both the Dow and S&P 500 finished a volatile session lower while the Nasdaq eked out a small gain.

Earlier, stock markets in London, Paris and Frankfurt finished in the red, despite some major companies spiking on strong earnings reports.

Shares in Swiss banking giant UBS jumped more than three percent as its net profit rose 80 percent in the first quarter, beating expectations.

Strong quarterly profit growth led shares in German sportswear giant Adidas to jump more than eight percent in Frankfurt.

After a weak lead from Wall Street, Asian stock markets mostly rose Wednesday, with Hong Kong up more than one percent.

- Key figures at 2030 GMT -

West Texas Intermediate: UP 7.0 percent at $106.88 a barrel

Brent North Sea Crude: UP 6.1 percent at $118.03 a barrel

New York - Dow: DOWN 0.6 percent at 48,861.81 (close)

New York - S&P 500: DOWN less than 0.1 percent at 7,135.95 (close)

New York - Nasdaq Composite: UP less than 0.1 percent at 24,673.24 (close)

London - FTSE 100: DOWN 1.2 percent at 10,213.11 (close)

Paris - CAC 40: DOWN 0.4 percent at 8,072.13 (close)

Frankfurt - DAX: DOWN 0.3 percent at 23,954.56 (close)

Hong Kong - Hang Seng Index: UP 1.7 percent at 26,111.84 (close)

Shanghai - Composite: UP 0.7 percent at 4,107.51 (close)

Tokyo - Nikkei 225: Closed for a holiday

Euro/dollar: DOWN at $1.1695 from $1.1712 on Tuesday

Pound/dollar: DOWN at $1.3489 from $1.3515

Dollar/yen: UP at 160.23 yen from 159.64 yen

Euro/pound: UP at 86.71 pence from 86.64 pence

B.Johnson--SFF