* U.S. stocks rally but pare gains on Geithner worries
* Dollar tumbles versus yen as UK bank woes slam sterling
* U.S. debt pares losses, euro bond yields hit record low
* Crude hovers at $41 a barrel as slowdown crushes demand
(Recasts with U.S. markets, changes dateline; previous
LONDON)
By Herbert Lash
NEW YORK, Jan 21 (Reuters) - U.S. stocks gained on
Wednesday, supported by a solid outlook from bellwether IBM,
but were off their highs on concerns that a government rescue
program will take longer than anticipated.
U.S. Treasuries and the dollar both fell, while overseas
equity markets closed lower on fears over the outlook for
banks.
The U.S. dollar fell to a session low against the yen as
benchmark U.S. stock indexes pared gains and briefly turned
negative. The pound tumbled to its lowest since 1985 against
the dollar as British banking woes weighed.
European shares fell on deepening fears that major
financial institutions would not survive the credit crisis,
while signs of mounting job losses highlighted the depth of a
still worsening economic slowdown across the euro zone.
Investors in Europe rushed to buy the safest and most
liquid fixed-income assets, sending two-year euro zone
government bond yields to historic lows.
Tough questions during a U.S. Senate hearing on Treasury
secretary designate Timothy Geithner raised doubts about his
confirmation, leading Wall Street to shed some early gains.
"Geithner said Obama's economic plan will come in the next
few weeks' and I think people are hoping for an immediate
package now. But the fear is that it could take it could take
two to three months," said Bret Barker, a portfolio manager at
Metropolitan West Asset Management in Los Angeles.
Around 1 p.m., the Dow Jones industrial average <> was
up 98 points, or 1.24 percent, at 8,047.30. The Standard &
Poor's 500 Index <.SPX> was up 11.6 points, or 1.44 percent, at
816.82. The Nasdaq Composite Index <> was up 22 points, or
1.55 percent, at 1,463.64.
International Business Machines Corp <IBM.N> contributed
the most to the Dow's gain, jumping 8.7 percent. The world's
top technology services company reported a quarterly profit and
gave a 2009 profit outlook that surpassed expectations.
Financial shares advanced as investors hunted for bargains
in a sector hard hit by losses resulting from the credit crunch
and worries of more to come.
JPMorgan Chase & Co <JPM.N> jumped almost 11 percent and
ranked among the Dow's top advancers.
European shares fell for the tenth session in the last 11
as a relief rally among battered banking shares failed to
offset declines in other sectors, notably energy.
The FTSEurofirst 300 <> index of top European shares
fell 0.9 percent to close at a two-month low of 767.23, pulled
down by energy stocks despite a rise in crude oil prices.
British banks pared steep losses despite concerns they may
need more government aid or be nationalized.
Barclays <BARC.L> fell 9.3 percent, after being down more
than double that, and Lloyds Banking Group <LLOY.L> ended the
session up 0.7 percent after falling as much as 26 percent.
However, banking troubles left many investors unnerved. The
recapitalization of ailing Royal Bank of Scotland blew out the
British deficit to its highest on record in December.
"There's so much uncertainty about banks being nationalized
and the effect this would have on governments' balance sheets,
and credit ratings," said Cazenove strategist Elin Anden.
"There are too many macro worries to encourage buying shares."
The prospect that more dramatic intervention may be needed
as euro zone economies tip into recession tugged a European
banks index to a 16-year low and pushed the yield on two-year
German government debt to as low as 1.409 percent <EU2YT=RR>.
The dollar fell against a basket of major currencies, with
the U.S. Dollar Index <.DXY> down 0.30 percent at 86.12.
Against the yen, the dollar <JPY=> was down 2.05 percent.
The euro <EUR=> fell 0.09 percent at $1.2876.
The pound fell as low as $1.3622 <GBP=>, its lowest since
September 1985.
"The UK financial system is in tatters," said Ron Simpson,
director of currency research at Action Economics in Tampa,
Florida. "We have not seen a bottom for sterling."
U.S. Treasury bond prices fell as hopes for some economic
recovery undercut the bid for safe-haven U.S. government debt.
The cost of the government's plans for pulling the United
States from recession and restore confidence in U.S. banks
weighed on Treasuries because it would boost their supply.
The benchmark 10-year U.S. Treasury note <US10YT=RR> fell
17/32 to yield 2.43 percent. The 30-year U.S. Treasury bond
<US30YT=RR> in price to yield 3.06 percent.
Oil hovered around $41 a barrel, as further evidence
emerged of a deepening global slowdown that is crushing demand
for fuel.
U.S. light sweet crude oil <CLc1> rose 80 cents to $41.64
per barrel.
Spot gold prices <XAU=> fell $3.70 to $852.10 an ounce.
Ongoing trouble in the financial sector and worrisome
economic data knocked Asian shares down, with the MSCI index of
Asia-Pacific stocks outside Japan <.MIAPJ0000PUS> falling 1.7
percent and Japan's Nikkei average <> sliding 2 percent.
(Reporting by Leah Schnurr, Ellen Freilich, Nick Olivari and
Gertrude Chavez-Dreyfuss in New York, Jamie McGeever, David
Sheppard and Brian Gorman in London and Brian Rohan in Berlin;
writing by Herbert Lash; Editing by Dan Grebler)
