Oil climbs above $116 as financials sag

By Kevin Plumberg

HONG KONG (Reuters) - Oil rose above $116 a barrel on Thursday, pushing up commodity prices broadly and stoking inflation fears as investors bailed out of shares in the financial sector and bought back resource-related stocks.

The popular trade of betting on strength in raw materials prices because of solid growth in developing countries while selling off the unstable financial sector had been seriously tested in the last few weeks as the U.S. dollar rallied to a six-month high against the euro.

However, a U.S. government report on Wednesday showing a decline in crude inventories has investors thinking about resource scarcity again, proving that bets on higher oil prices are difficult to reverse completely even with the U.S. dollar showing sustained strength.

"We're seeing a real surge in trading houses, which are gaining both on higher oil prices and a sense that they'd become good value after heavy selling recently," said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Securities in Tokyo.

The September contract for U.S. light crude rose 80 cents to $116.79 a barrel in early trade, after jumping $3 overnight.

On Tuesday, crude dropped to a three-month low of $112.31 and remains more than 20 percent below a record $147.27 reached a month ago.

Metals prices marched higher in tandem with oil, with gold up 0.4 percent to $829.15 an ounce after touching a 2008 low just below $802 on Tuesday.

Resource-related shares in Japan such as Sumitomo Metal Mining Co Ltd (5713.T) and trading firm Mitsui & Co (8031.T) were among the top percentage gainers in the Nikkei share average .N225.