* Stocks rally on banking rebound after Merrill write-down
* Crude oil falls as low as $120.42, lowest since May 6
* Dollar rises on sliding oil prices, consumer confidence
* Stock rally, oil fall curb appeal of debt as safe haven
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, July 29 (Reuters) - Bank shares rebounded sharply
after Merrill Lynch's surprise $5.7 billion write-down to lift
U.S. stocks on Tuesday in a rally sparked by falling oil prices
and rising consumer confidence.
Oil extended a steep slide since mid-July on mounting
evidence high prices and sluggish growth are curbing demand.
Commodity prices in general have followed crude, with the
Reuters-Jefferies CRB <.CRB> index, a closely watched gauge of
19 commodity futures, diving to a low last seen on May 5.
Data showing a surprise bounce in U.S. consumer confidence
led stocks to rebound in Europe after equity markets had fallen
earlier on Merrill's decision late on Monday to unload $30.6
billion in risky debt and raise $8.5 billion by selling stock.
The fall in crude prices to below $121 a barrel further
lifted sentiment that had sunk on Merrill's write-down and a
raft of dour European economic data. French consumer morale, UK
retail sales and mortgage approvals all slid to record lows.
The dollar surged to a one-month high on oil's renewed
slide; for some investors a firmer dollar may have reduced the
appeal of commodities.
Analysts said commodities, which have outperformed stocks
and bonds for four straight quarters until June, looked set to
fall further on speculation commodity prices, and in particular
oil, had rallied to levels unjustified by demand.
U.S. stocks surged more than 2 percent, led higher by big
jumps in Bank of America <BAC.N>, JPMorgan Chase <JPM.N> and
Wells Fargo & Co <WFC.N>. Bank of America rose more than 13
percent, Wells more than 8 percent and JPMorgan 7 percent.
Merrill's latest write-down and share sale raised hopes a
turning point had been reached in the global credit crisis.
Merrill said it sold $8.55 billion of common shares at $22.50
each, below the price each, below the price at which its shares
traded on Tuesday.
"There's always the hope that this might be the last big
financial blow-up," said Tim Ghriskey, chief investment officer
at Solaris Asset Management in Bedford Hills, New York. "Some
people think we may be getting toward the end in terms of large
write-downs."
Merrill's shares opened about 7 percent lower, and closed
almost 8 percent higher at $26.27.
The Dow Jones industrial average <> rose 266.48 points,
or 2.39 percent, at 11,397.56. The Standard & Poor's 500 Index
<.SPX> gained 28.83 points, or 2.34 percent, at 1,263.20. The
Nasdaq Composite Index <> added 55.40 points, or 2.45
percent, at 2,319.62.
European shares snapped a three-day losing streak on
crude's fall and the U.S. consumer confidence data, although
banks limited gains due to worries over more write-downs.
A bearish note from Merrill dampened an already subdued
mood in the sector. It estimated that European banks were only
77 percent of their way through toxic write-downs.
"Many European banks are holding structured credit assets
similar to those of Merrill Lynch. The write-downs at Merrill
Lynch are therefore potentially useful reference points for
European banks," the broker said.
The DJStoxx European banks <.SX7P> fell 0.6 percent, with
UBS <UBSN.VX> losing 3.6 percent, Barclays <BARC.L> 4.1 percent
and BNP Paribas <BNPP.PA> 1.8 percent. The banking index lost
as much as 3.6 percent earlier in the session.
The FTSEurofirst 300 <> index of top European shares
closed 0.3 percent higher at 1,162.57 points.
U.S. government debt prices fell. Lower energy costs and a
slight pick-up in consumer sentiment boosted the outlook for
the economy and the likelihood the Federal Reserve will raise
rates later this year to fight inflation, analysts said.
The U.S. consumer index came in at 51.9 for July, its first
rise since December, from an upwardly revised 51.0 in June --
the lowest since a reading of 47.3 in February 1992.
The benchmark 10-year U.S. Treasury note <US10YT=RR> fell
one-half a point to yield 4.07 percent. The 30-year U.S.
Treasury bond <US30YT=RR> fell 18/32 to yield 4.65 percent.
The dollar extended gains, with a dollar index rising to a
one-month high, cheered by the drop in oil prices and the
unexpected rise in U.S. consumer confidence.
The dollar rose against major currencies, with the U.S.
Dollar Index <.DXY> up 0.84 percent at 73.29. Against the yen,
the dollar <JPY=> rose 0.63 percent at 108.12.
The euro <EUR=> fell 1.01 percent at $1.5586.
Oil fell. OPEC President Chakib Khelil said crude prices
could fall further to $70 to $80 a barrel in the long term.
U.S. crude <CLc1> dropped $2.54 to settle at $122.19 a
barrel after dipping as low as $120.42, its lowest since May 6.
Brent crude <LCOc1> fell $3.13 to $122.71.
U.S. gold futures closed down more than 1 percent, trading
near a one-month low as a stronger dollar, weaker oil and
rebounding stocks prompted investors to sell bullion.
The August gold <GCQ8> contract settled down $11.20 at
$916.50 an ounce in New York.
Asian stocks fell about 2 percent as Merrill's write-down
of bad debt drained confidence in the shaky financial sector.
Japan's Nikkei share average <> closed down 1.5
percent. Shares in the rest of the Asia-Pacific region dropped
2.1 percent, according to an MSCI index <.MIAPJ0000PUS>.
(Reporting Steven C. Johnson, Lucia Mutikani, John Parry,
Barani Krishnan, Richard Leong and Frank Tang in New York, and
Alex Lawler, Patrizia Kokot and Emelia Sithole-Matarise in
London)
(Reporting by Herbert Lash. Editing by Richard Satran)
