* Financial shares rally, help lift U.S., European indexes
* U.S. dollar edges up from 10-month lows for second day
* Oil edges up but gold drops as greenback gains
(Updates with U.S. markets, changes byline, dateline, previous
LONDON)
By Daniel Bases
NEW YORK, Oct 18 (Reuters) - Wall Street rebounded on
Monday after an upbeat earnings report from Citigroup, while
the U.S. dollar rose for a second session as investors dialed
back expectations for aggressive policy easing from the Federal
Reserve.
European financial shares were also given a boost on news
Royal Bank of Canada is splashing out a 29 percent premium to
buy UK-based fund manager BlueBay Asset Management <BBAY.L>.
Comments from Fed Chairman Ben Bernanke on Friday resonated
into the new week, cementing the view that more quantitative
easing would take place, but the assumptions for large amounts
of stimulus appear to be fraying.
Commodity prices were flat as gold hovered under record
highs, nearly unchanged on the day, while crude oil prices
advanced 1.6 percent.
"It is a continuation from Friday," said Chuck Butler,
president of EverBank World Markets in St. Louis. "Now everyone
knows (quantitative easing) is going to happen we are seeing
some profit taking in the euro/dollar and commodities."
Investors also trimmed bets against the dollar ahead of a
forthcoming Group of 20 rich and developing nations meeting and
before hedge funds' book closings at the end of November,
analysts said.
In mid-morning New York trade, the Dow Jones industrial
average <> rose 48.71 points, or 0.44 percent, at
11,111.49. The Standard & Poor's 500 Index <.SPX> gained 3.61
points, or 0.31 percent, at 1,179.80. The Nasdaq Composite
Index <> climbed 3.75 points, or 0.15 percent, at
2,472.52.
For now, investor focus on worries over the potential
exposure of major banks to foreclosure losses is shifting to
the background.
"Financials have tried to weather the storm from the last
couple of days, today helped by Citigroup," said Steve Goldman,
market strategist at Weeden & Co in Greenwich, Connecticut.
He said investors are gauging if the foreclosure mess is
"really going to affect lending or it is a concentrated issue
and not an economic issue."
Citigroup Inc <C.N> shares rose 3 percent, to $4.07,
putting a bid under bank shares, after it reported a third
consecutive quarterly profit, slightly beating Wall Street's
forecasts. For details see [].
The KBW bank index <.BKX> rose 2 percent after dropping 4.5
percent last week.
In Europe share prices rose while Japanese stocks ended
nearly unchanged.
The pan-European FTSEurofirst 300 <> index of top
shares was up 0.35 percent at 1,089.37.
Shares of BlueBay, a leading European bond fund manager,
rose 29.61 percent on the 963 million pounds ($1.5 billion)
offer by RBC, Canada's biggest bank by market value.
MSCI's emerging market stock benchmark <.MSCIEF> fell 0.94
percent on Monday after hitting a 2-1/2-year high last week.
Gains in U.S. and European markets meant the MSCI All-Country
World index <.MIWD00000PUS> was flat.
CURRENCIES
The dollar edged up against a basket of currencies made up
of its major trading partners <.DXY>, rising 0.05 percent.
In addition to Bernanke's comments, two Fed officials
joined in over the weekend, arguing for further aggressive
action as U.S. inflation unexpectedly slowed in September even
as retail sales picked up.
Quantitative easing effectively requires the Fed to print
more money, thus increasing supply and keeping interest rates
at unattractively low levels.
The euro fell 0.16 percent at $1.3953 <EUR=>, retreating
further from last week's 8-1/2 month high. However the
greenback fell 0.23 percent to 81.24 yen <JPY=>, edging back
towards a 15-year low of 80.88 hit on EBS last week.
On Monday September's reading of U.S. industrial production
fell unexpectedly.
The benchmark 10-year U.S. Treasury <US10YT=RR> rose 14/32
of a point in price, driving the yield down to 2.51 percent.
"This looks like a retracement," said Jim Vogel, interest
rate strategist at FTN Financial in Memphis, Tennessee. "The
momentum behind the inflation trade kind of faded."
In Europe, the December Bund future <FGBLc1> was down 11
ticks at 130.62. The 10-year Bund yield <DE10YT=TWEB> was flat
at 2.38 percent, sending the 2/10 year yield spread to 150 bps,
its tightest since Oct. 14.
The dollar's rebound has caused commodity investors to hit
the pause button on their purchases.
U.S. light sweet crude oil <CLc1> rose $1.23 to $82.48 per
barrel, and spot gold prices <XAU=> rose $2.70 to $1370.80.
(Additional reporting by Rodrigo Campos and Nick Olivari in
New York, Lucia Mutikani in Washington and Jeremy Gaunt and
Anirban Nag in London; Editing by Padraic Cassidy)
