* Crude oil advances slightly as U.S. crude stocks slip
* Yield on 30-year U.S. bond jumps above 3.46 pct
* Dollar rallies after Fed calms inflation jitters
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, Jan 28 (Reuters) - U.S. stocks rose on Wednesday
on hopes for a proposed stimulus plan and efforts by the new
Obama administration to quickly aid ailing banks, while the
dollar gained after the Federal Reserve calmed inflation
fears.
European shares rose more than 3 percent in a third
straight day of gains, led by banks, with Lloyds Banking Group
leaping 50 percent after an analyst said a full nationalization
would not be necessary.
U.S. equities also took comfort from the Fed's statement
released at the end of its two-day policy meeting that said the
central bank was prepared to buy long-term U.S. government debt
if that would improve conditions in financial markets.
U.S. Treasury debt prices plunged, however, because the Fed
declined, for now, to start buying longer-maturity government
debt as many bond investors had hoped.
Before the Fed's announcement, bond prices had risen on
buying hopes. But the 30-year long bond's yield, which moves
inversely to its price, spiked above 3.46 percent to the
highest level since Dec. 1 in the aftermath of the policy
statement.
Oil prices settled higher after U.S. government data showed
draw-downs in gasoline and distillate inventories, and the
Organization of Petroleum Exporting Countries vowed to fully
implement steep supply cuts by month's end.
Bank shares were the stars of the day on both sides of the
Atlantic, with many posted double-digit percentage gains, on
hopes a U.S. "bad bank" would be created to mop up toxic
assets, giving many banks double digits gains. For details, see
[].
Results posted by Wells Fargo <WFC.N>, one of the biggest
U.S. banks, and Spain's Santander <SAN.MC>, the euro zone's
largest bank, in which they pledged to keep their dividend,
also gave investors hard hit by the credit crisis something to
cheer.
"The combination of some good earnings reports from the
banks and, more important than anything, some clarity on where
we're heading with banking policy in the near-term is what's
contributing mainly to the rally," said Jim Paulsen, chief
investment officer at Wells Capital Management in Minneapolis.
Announcements from Tokyo to Washington and London on
further government fiscal stimulus measures helped boost
confidence, such as a U.S. Senate move on Tuesday to widen a
proposed stimulus package to about $887 billion.
The Dow Jones industrial average <> rose 200.72 points,
or 2.46 percent, at 8,375.45. The Standard & Poor's 500 Index
<.SPX> gained 28.37 points, or 3.35 percent, at 874.08. The
Nasdaq Composite Index <> added 53.44 points, or 3.55
percent, at 1,558.34.
Among U.S. banks, both State Street Corp <STT.N> and Wells
Fargo jumped 31 percent each.
The FTSEurofirst 300 <> index of top European shares
closed 3.2 percent higher at 810.82 points, but is still down
2.6 percent this year.
Royal Bank of Scotland <RBS.L> soared 36 percent and
Deutsche Bank <DBKGn.DE> climbed 22 percent.
Lloyds <LLOY.L> spiked 50 percent after Citigroup analyst
Tom Rayner upgraded his rating to "buy" and said a full
nationalization would be "unnecessary and inconsistent" with
the government's aim.
The benchmark 10-year U.S. Treasury note <US10YT=RR> fell
21/32 in price to yield 2.65 percent. The 30-year U.S. Treasury
bond <US30YT=RR> fell 84/32 in price to yield 3.42 percent.
The New Zealand dollar plunged against the U.S. currency
after the Reserve Bank of New Zealand slashed benchmark
interest rates to 3.5 percent, the lowest level in 10 years.
The New Zealand currency fell more than 2 percent to a low
of $0.5191 <NZD=> before bouncing back.
The dollar rose against a basket of major currencies, with
the U.S. Dollar Index <.DXY> up 0.29 percent at 84.65. Against
the yen, the dollar <JPY=> rose 1.53 percent at 90.28.
The euro <EUR=> fell 0.28 percent at $1.3139.
U.S. crude oil <CLc1> settled at $42.16 a barrel, up 58
cents, after a 9 percent plunge on Tuesday as bleak U.S.
economic data stirred demand concerns.
London Brent <LCOc1> settled at $44.90, up $1.17.
Gold extended losses after the Fed kept interest rates
unchanged and signaled concern about deflation risks.
But the Fed's comments indicating that economic conditions
were still dire were seen keeping gold alive as a safe-haven
investment.
"For gold, it shows that the credit crisis is still very
severe, and it will keep gold in people's eyes," said Bill
O'Neill, managing partner of LOGIC Advisors in Upper Saddle
River, New Jersey.
U.S. gold futures for February delivery <GCG9> settled down
$11.30 at $888.20 an ounce in New York.
Asian shares rose, helped by gains on Wall Street and a
jump in banking shares. Japan's Nikkei average <> closed
up 0.6 percent and the MSCI index of Asia-Pacific stocks
outside Japan <.MIAPJ0000PUS> climbed 2.4 percent.
(Reporting by Ellis Mnyandu, John Parry and Steven C. Johnson
in New York; Jamie McGeever, Atul Prakash, Alex Lawler and Jan
Harvey in London and Tracy Rucinski in Madrid; writing by
Herbert Lash; Editing by Leslie Adler)
