Risk on trade back on

Gold (COMEX:GCN14) rose to a three-week high and the yen (CME:JYN14) strengthened after violence worsened in Iraq. U.S. stocks erased an early loss, while European shares fell.

Gold advanced 0.2% as of 9:41 a.m. in New York. Japan’s currency strengthened against all 16 but one of its major peers, adding 0.2% against the dollar. The pound (CME:B6N14) climbed to more than $1.70 for the first time since 2009. U.K. natural gas (NYMEX:NGN14) added the most in three months as Russia’s OAO Gazprom cut flows to Ukraine. The Standard & Poor’s 500 Index (CME:SPM14) was little changed after earlier falling as much as 0.3%. The Stoxx Europe 600 Index fell 0.3%.

Iraq’s sectarian violence showed no sign of abating, with Sunni Muslim militants and government forces fighting to control Tal Afar. Prime Minister Nouri al-Maliki, a Shiite, is fighting to reverse the advance of ISIL militants, who captured Iraqi’s largest northern city and other towns last week. In Ukraine, Russia cut natural gas supplies after demanding fuel payments be made in advance, the first time shipments have been affected in this year’s crisis in relations between the two countries.

“Pictures of atrocities in Iraq, the breakdown of talks between Ukraine and Gazprom,” Kit Juckes, global strategist at Societe Generale SA in London, said in an e-mailed note. “It all makes for a risk-averse start to the week. Oil prices are higher, at levels not seen since last autumn, and if the trend goes on, it will have an impact on risk appetite.”

Iraq’s government is seeking to reassert control over territory taken by a breakaway al-Qaeda group, whose advance puts in doubt the long-term unity of the Persian Gulf country. Sectarian strife is pushing Iraq closer to civil war, three years after the U.S. withdrew its forces.

The IMF cut its growth forecast for the U.S. economy this year and said the Federal Reserve may have scope to keep interest rates at zero for longer than investors expect. The Washington-based IMF now sees the world’s largest economy growing 2% this year, down from an April estimate of 2.8%. The IMF left a 2015 prediction unchanged at 3%, and said it doesn’t expect the U.S. to see full employment until the end of 2017, amid low inflation.

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