Bin Laden death saps safe-haven appeal out of precious metals

>NEW YORK (Reuters) - Oil slipped on Monday in volatile trading as investors weighed the effect on crude futures and other markets from news that U.S. forces killed al Qaeda leader Osama bin Laden. Brokers and analysts said oil's early tumble and the U.S. dollar's initial bounce after news of bin Laden's death did not alter the factors that have pushed the greenback to three-year lows against a basket of currencies and did not end turmoil in Africa and the Middle East that has supported oil prices."It will increase the volatility because of unknowns, the prospect of retaliation, and uncertainty," said Richard Ilczyszyn, senior market strategist at Lind-Waldock in Chicago.Oil bounced up after the early decline on lift from an Iran state television report that Israeli military aircraft were massing at a U.S. base in Iraq.

"The Pentagon dismissed the report as "ridiculous" and Israel said it had no knowledge of such a plan.Brent crude for June fell 77 cents to settle at $125.12 a barrel, reaching $126.54 after an early slide to $121.67"The Pentagon dismissed the report as "ridiculous" and Israel said it had no knowledge of such a plan.Brent crude for June fell 77 cents to settle at $125.12 a barrel, reaching $126.54 after an early slide to $121.67. Brent's 2011 peak of $127.02 was reached on April 11.U.S. crude for June fell 41 cents to settle at $113.52, having reached $114.83, the highest intraday price since hitting $130 on September 22, 2008, after bouncing from an earlier $110.82 low.U.S. gasoline futures dropped 5 cents per gallon and heating oil, the futures benchmark for distillates, slipped more than 2 cents per gallon as June contracts moved into the front-month position after May contracts went off the board on Friday."We're back to testing ranges like we were last week and Brent's failure to get to $127 on the bounce is probably why we pulled back again," said Chris Dillman, analyst at Tradition Energy in Stamford, Connecticut.The CME Group's (CME.O) volatility index for oil .OVX rose 1.49, or 4.9 percent, to 31.88. It fell as low as 29.36 on April 21.Brent crude trading volumes were dampened by a holiday in Britain.

U.S. trading volume rebounded from Friday's total of only 366,674 lots, and was on pace to be more than half million lots with 2-1/4 hours of post-settlement trading remaining.Both Brent and U.S. crude oil prices initially suffered multi-dollar retreats and the dollar was bolstered by the U.S. military success.Bin Laden was killed in a U.S. helicopter raid on a mansion near the Pakistani capital Islamabad, officials said, ending a nearly 10-year worldwide hunt.Fears that bin Laden's death might trigger a violent response by al Qaeda or other supporters were reinforced when the Pakistani Taliban threatened attacks against government leaders, including President Asif Ali Zardari, the Pakistan army and the United States.The closest al Qaeda has been to hitting the oil industry was in February 2006, when Saudi forces repelled a suicide attack on the Abqaiq oil-processing center."Despite the initial market impact on oil prices, there's really no significant impact here on oil production or transit," said Ian Bremmer, the president and founder of Eurasia Group."Al Qaeda's prominence in Yemen and Saudi Arabia never meaningfully threatened Saudi oil production; so no change with Bin Laden's death."DOLLAR STILL A KEYThe dollar initially rose broadly and after the news of bin Laden's death, but later the euro rallied to a 17-month high against the greenback on expectations U.S.

"crude for June fell 41 cents to settle at $113.52, having reached $114.83, the highest intraday price since hitting $130 on September 22, 2008, after bouncing from an earlier $110.82 low.U.S"interest rates will stay low even as euro zone rates look set to rise further.The dollar index .DXY gave up its gains and fell to a three-year low, unable to reverse a dollar-selling trend that has pressured the currency in recent weeks and helping limit oil price losses. <USD/>(Additional reporting by Matthew Robinson and Gene Ramos in New York, Christopher Johnson in London and Alejandro Barbajosa in Singapore; Editing by Marguerita Choy) Tweet this Share this Link this Digg this Email Reprints