* Stocks gain; oil slide sparks hope of consumer recovery
* Oil slides to five-month lows at Gustav fears ease
* Dollar hits fresh 2008 highs; euro slips to 7-month low
* Precious metals, grains, all fall on dollar'strength
(Recasts with U.S. markets, adds byline; changes dateline;
previous LONDON)
By Herbert Lash
NEW YORK, Sept 2 (Reuters) - A plunge in crude prices on
Tuesday tempered global inflation fears and drove the U.S.
dollar to its highest level in 10 months and stock markets in
Europe and the United States to solid gains.
Oil's tumble to a session low of $105.46 a barrel <CLc1>
came after early reports showed Hurricane Gustav had spared
major U.S. oil infrastructure along the Gulf Coast. But with
other storms forming outside the Gulf, oil prices cut their
losses.
U.S. government bonds rose as crude's steep slide helped
ease inflation worries. Euro zone government debt fell. Weak
economic data also contributed to the price rise, which drove
yields to recent lows.
The euro fell to a seven-month trough against a resurgent
dollar, sliding below $1.45, as oil's slide stoked expectations
of interest rate cuts outside the United States.
Investors sold off their positions in oil and other raw
materials following Gustav's weaker-than-expected impact. The
Reuters-Jefferies CRB index <.CRB>, a benchmark for global
commodities, slid to 6-1/2 month lows.
European and U.S. stocks rose as oil's drop buoyed hopes of
a recovery in consumer and business spending, key pillars of
profit growth. Energy shares suffered.
Stock gains were broadly-based, with shares of airlines,
big manufacturers and consumer-oriented companies among the
standouts. Financial, technology and home-builder stocks also
advanced nicely as investors bought beaten-down sectors.
"Oil has decisively broken below its 200-day moving average
and has taken all commodities with it," said Ted Oberhaus,
manager of equity trading Lord Abbett & Co. in Jersey City, New
Jersey. "The bubble has burst. That's been one of the reasons
that equities have been held in check."
Shares of conglomerate General Electric <GE.N> rose more
than 3 percent to $29.02, and were a top boost to the S&P 500.
Aircraft maker Boeing <BA.N> gained 2.4 percent to $67.14.
Among airlines, shares of UAL Corp <UAUA.O>, parent of
United Airlines, rose 16 percent to $12.90, while the airline
index <.XAL> surged 9 percent.
Major U.S. airline stocks lost most of their value over the
past year as fuel prices soared.
Retailer Target Corp's <TGT.N> shares jumped 4 percent to
$55.14. The S&P retail index <.RLX> gained 4.4 percent.
Banking shares jumped, even after a Wachovia analyst said
the third quarter will be a "quarter to forget" for Wall Street
investment banks and slashed its estimates for Goldman Sachs
<GS.N>, Lehman Brothers <LEH.N> and Morgan Stanley <MS.N>.
Before 1 p.m., the Dow Jones industrial average <> was
up 114.48 points, or 0.99 percent, at 11,658.03. The Standard &
Poor's 500 Index <.SPX> was up 4.02 points, or 0.31 percent, at
1,286.85. The Nasdaq Composite Index <> was up 5.93
points, or 0.25 percent, at 2,373.45.
In Europe, banking shares rallied. BNP Paribas <BNPP.PA>
rose more than 4 percent, Credit Agricole <CAGR.PA> was up
nearly 4 percent, Dexia <DEXI.BR> advanced 3.6 percent and
Fortis <FOR.BR> gained 4 percent.
But lower crude prices pressured energy stocks. BP <BP.L>,
Royal Dutch Shell <RDSa.L>, gas producer BG Group <BG.L> and
Tullow Oil <TLW.L> shed between 1.8 and 5.1 percent.
The FTSEurofirst 300 <> index of top European shares
closed 0.91 percent higher at 1,200.20 points, but is still
down 20 percent so far this year.
The dollar pared gains against the euro after data showed
U.S. factory activity unexpectedly shrank slightly in August.
The Institute for Supply Management said its index of U.S.
national factory activity edged lower to 49.9 in August from 50
in July. Economists had expected an unchanged reading of 50.
Combined with an increasingly bleak UK economic outlook,
the dollar's broad strength pushed sterling further below $1.78
to its lowest since April 2006.
The dollar rose against major currencies, with the U.S.
Dollar Index <.DXY> up 0.57 percent at 78.046. Against the yen,
the dollar <JPY=> fell 0.67 percent at 108.76.
The euro <EUR=> fell 0.55 percent at $1.4524.
Crude traded below $109 a barrel after sliding to
five-months lows.
U.S. light sweet crude oil <CLc1> fell $6.57 to $108.89 a
barrel.
Gold dropped more than 3 percent to below $800 an ounce
after oil's drop and dollar strength slashed bullion's appeal.
Silver, platinum and palladium also fell heavily, losing
between 3 percent and 5 percent.
"Gold's leading the way down," said Commerzbank trader Rory
McVeigh. "We've seen a shift in emphasis where people are now
selling commodities to move their assets back into dollars."
Spot gold prices <XAU=> fell $11.65 to $805.45 an ounce.
A steep fall in costs for U.S. manufacturers surprised some
investors and helped bolster bond prices.
The benchmark 10-year U.S. Treasury note <US10YT=RR> rose
19/32 to yield 3.75 percent. The 30-year U.S. Treasury bond
<US30YT=RR> gained 29/32 to yield 4.37 percent.
Asian stocks fell to a 2-year low, led by sharp losses in
Japan, where confusion reigned about the country's leadership.
Japan's Nikkei share average <> ended down 1.8 percent
at a 5-month low, as investors grappled with the implications
of the resignation of Prime Minister Yasuo Fukuda, the second
Japanese leader to resign in less than a year.
An index of Asia-Pacific equities outside Japan
<.MIAPJ0000PUS> slid 0.6 percent to an 18-month low.
(Reporting by Ellis Mnyandu, Wanfeng Zhou, Lucia Mutikani,
John Parry in New York and Atul Prakash, Jane Merriman, George
Matlock and David Sheppard in London
(Writing by Herbert Lash. Editing by Richard Satran)
