Iraq Anxiety Pushes Oil to Three-Month High

European shares held steady near 6-1/2-year highs on Thursday, with gains limited by concerns over the pace of global growth, while oil prices hit a three-month peak on escalating violence in Iraq.

A cut in the World Bank's global growth forecast prompted investors to book profits from recent gains which propelled European, U.S. and Asian shares to multi-year and record peaks.

The FTSEurofirst 300 index of top European shares was flat at 1,392.07 points, hamstrung by a dip in miners Rio Tinto RIO.L and BHP Billiton BLT.L. The index was still within sight of the 1,398.65 peak hit earlier this week.

"After such a good rally, it's not the time to buy right now, it's better just to sit on your gains. The market is quite vulnerable to negative news at the moment," said Philippe de Vandiere, analyst at Altedia Investment Consulting, in Paris.

"On the longer-term however, earnings in Europe will start to recover in the next few months, which should lift stocks going forward."

Some analysts said anxiety about the violence in Iraq was also undermining investors' appetite for riskier assets.

SURGING OIL

Fighting in Iraq also prompted concerns about the oil supply outlook, lifting U.S. crude futures CLc1 0.8 percent to $105.19 a barrel, their highest since early March.

Militants from an al-Qaeda splinter group captured Mosul, the country's second largest city, and closed in on the biggest oil refinery in Iraq.

The insurgency has also hurt financial markets in neighboring Turkey, where stocks fell 3.3 percent and the lira TRY= tumbled 1.7 percent on Wednesday as the militants took 80 Turkish nationals hostage.

Among major currencies, the New Zealand dollar jumped 1.3 percent after the country's central bank raised interest rates and retained a hawkish bias, surprising some investors who had bet on a slower pace of rate hikes.

The kiwi surged more than one percent to $0.8670.

Other major currencies were little changed with the euro still stuck near the four-month low hit after the European Central Bank cut rates last week.

The euro traded at $1.3530 EUR=, compared with a low of $1.3503 hit on Thursday. The euro has fallen almost 1 percent this week as the effects of the ECB's easing policies spread through markets but the jury remains firmly out on whether the bank has managed to turn the tide.

A stronger dollar on the basis of improvement in the U.S. economy and a resulting rise in Treasury yields was many banks' base scenario for 2014 at the start of the year.

"It does feel like lower yields are starting to weigh on the euro," said Paul Robson, a currency strategist at RBS in London.

"I don't quite want to jump on the bandwagon yet - the reasons for the euro's strength this year have not quite gone away. Yes it may go through $1.35, but I don't think it will go much beyond that."

In fixed income, peripheral euro zone bond yields retreated further from record lows as investors made way in their portfolios to take down bond sales from Italy and Spain.

Spanish 10-year bond yields were up 4 basis points at 2.67 percent as Madrid also prepared to ease its hefty upcoming debt repayments by switching expensive debt issued at the height of the crisis for a new 10-year bond.

Equivalent Italian yields were up a similar amount at 2.83 percent before an auction of up to 8.5 billion euros of three-, seven-, and 30-year bonds.