* Financial shares rally, help lift U.S., European indexes
* U.S. dollar gives up modest gains, trades flat
* Oil and gold gain ground
(Updates U.S. markets prices, adds comment)
By Daniel Bases
NEW YORK, Oct 18 (Reuters) - Wall Street rose on Monday
after an upbeat earnings report from Citigroup, while the U.S.
dollar held steady 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 has agreed to buy UK-based fund manager
BlueBay Asset Management <BBAY.L> at a 29 percent premium above
Friday's closing price.
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.
Spot gold tacked on a few pennies but held just under its
all-time high of $1,387.10 while crude oil prices advanced 2
percent to $82.88 a barrel.
"The dollar's move down has been extremely aggressive, and
there are investors wondering whether or not too much
quantitative easing has been priced in," said Jane Foley,
senior currency strategist at Rabobank.
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.
At midday, the Dow Jones industrial average <> rose
48.78 points, or 0.44 percent, at 11,111.56. The Standard &
Poor's 500 Index <.SPX> gained 3.24 points, or 0.28 percent, at
1,179.43. The Nasdaq Composite Index <> clung to a 5-1/2
month high, edging up 1.13 points, or 0.05 percent, at
2,469.90.
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 3.8 percent, to $4.10,
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 1.8 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 closed up 0.26 percent at 1,088.40.
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.
European banks Barclays <BARC.L>, HSBC <HSBA.L> and Societe
Generale <SOGN.PA> were up ranging between 1.2 percent and 2.5
percent.
The MSCI All-Country World index <.MIWD00000PUS> was flat.
CURRENCIES
The dollar slipped slightly against a basket of currencies
made up of its major trading partners <.DXY>, off 0.08 percent
after earlier gains.
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 regained its footing, but added just 0.05 at
$1.3983 <EUR=>, still off last week's 8-1/2 month high. The
greenback fell 0.32 percent to 81.17 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 21/32
of a point in price, driving the yield down to 2.49 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 $1.62, and spot gold
prices <XAU=> rose $2.90 to $1,371 an ounce.
(Additional reporting by Rodrigo Campos and Nick Olivari in
New York, Lucia Mutikani in Washington and Jeremy Gaunt,
Anirban Nag, and Harpreet Bhal in London; Editing by Kenneth
Barry)
