Oil surges on Iran reports; U.S. stocks fall

NEW YORK (Reuters) - Oil prices surged more than $3 a barrel on Friday after a U.S. contracted cargo ship fired warning shots at boats suspected to be Iranian, driving down U.S. stocks along with a survey showing U.S. consumer confidence fell to a 26-year low in April.

The dour consumer sentiment and withering stock market put a floor under safe-haven U.S. Treasuries, with prices easing but pulling off lows.

The Reuters/University of Michigan Surveys of Consumers said its final index of confidence for April fell deeper into recessionary territory, to 62.6 from 69.5 in March, on heightened worries over inflation and the sagging housing market.

Crude oil prices surged over $119 a barrel as the reports of the firing by the U.S. contract ship underscored tensions in the Gulf and on escalating Nigeria and UK supply snags.

According to American defense officials, the Westward Venture cargo ship chartered by the U.S. Defense Department was traveling in international waters when two unidentified small boats approached on Thursday. After the boats failed to respond to radio queries and a warning flare, the cargo ship's onboard security team fired "a few bursts" of machine gun and rifle warning shots, according to Cmdr. Lydia Robertson, a spokeswoman for the U.S. Navy's Bahrain-based Fifth Fleet.

On the New York Mercantile Exchange the price of June crude jumped $3.26 to $119.32.

"When you look at energy prices, housing, the U.S. consumer is still under pressure," said Subodh Kumar, chief investment strategist at Subodh Kumar & Associates in Toronto, Canada.

"The consumer sentiment numbers will indicate that the recent bounce we've seen in consumer discretionary stocks is a bit premature."

In the U.S. stock market, the Dow Jones industrial average .DJI was down 56.18 points, or 0.44 percent, at 12,792.77. The Standard & Poor's 500 Index .SPX was down 2.69 points, or 0.19 percent, at 1,386.13. The Nasdaq Composite Index .IXIC was down 28.81 points, or 1.19 percent, at 2,400.11.