* Stocks surge on big revision to second-quarter U.S. GDP
* Oil prices slip on supply plan if Gustav slams U.S. Gulf
* Dollar up on U.S. GDP, ECB rhetoric still impacts euro
* Surprise gains in U.S. GDP upends U.S., euro zone debt
(Recasts with U.S. markets, adds byline; changes dateline;
previous LONDON)
By Herbert Lash
NEW YORK, Aug 28 (Reuters) - The dollar rallied and U.S.
and European stocks climbed more than 1 percent on Thursday on
a report of stronger-than-forecast U.S. economic growth and a
surprise drop in oil prices as Gustav roared toward the Gulf's
energy infrastructure.
The stock market was cheered by a robust revision of U.S.
gross domestic product to 3.3 percent, up from an initial read
of 1.9 percent which had cast doubt on whether the United
States was in or near recession.
Euro zone and U.S. government debt prices fell on the
revised number -- analysts had expected 2.7 percent -- and
stocks jumped as it fanned optimism in equity markets.
The improved economic outlook, together with the slide in
oil prices, spurred investors to scoop up financial and retail
stocks and jump into industrial shares such as Caterpillar
<CAT.N>, seen as a bellwether for the U.S. economy.
Consumer spending and net exports were more robust than
initially estimated, and inventories fell less sharply, the
U.S. Commerce Department said.
"The market is gaining increasing confidence the strain in
the financial markets and high oil prices will not tip the
economy into a recession," said Jim Awad, chairman of W.P.
Stewart & Co. Ltd in New York.
A separate government report showed the number of U.S.
workers filing new claims for jobless benefits fell to a level
that was a touch lower-than-expected.
Lower oil prices also supported equities. Earlier, oil rose
above $120 a barrel, boosted by the threat Tropical Storm
Gustav poses to U.S. oil installations in the Gulf of Mexico.
"You hate to be underweight in stocks when you have an
economy that is performing better-than-expected," said James
Paulsen, chief investment officer at Wells Capital Management
in Minneapolis.
Before 1 p.m., the Dow Jones industrial average <> was
up 169.03 points, or 1.47 percent, at 11,671.54. The Standard &
Poor's 500 Index <.SPX> was up 12.56 points, or 0.98 percent,
at 1,294.22. The Nasdaq Composite Index <> was up 19.29
points, or 0.81 percent, at 2,401.75.
European stocks closed sharply higher after crude prices
slipped and the revised U.S. GDP number drew investors back
into the market.
Banking was the biggest sector to gain on the pan-European
FTSEurofirst 300 <> index, which ended 1.5 percent higher
at 1,190.91 points. The benchmark is still off 21 percent this
year.
French bank Credit Agricole <CAGR.PA> was one of the top
gainers, jumping 8.9 percent despite posting a 94 percent fall
in quarterly profit.
"People think that they've got the bulk of the write-downs
out of the way and results in the third and fourth quarters
will be better," said a London-based trader.
Other banks also advanced, with Barclays <BARC.L> rising
5.8 percent, UBS AG <UBSN.VX> rising 4.6 percent, HBOS <HBOS.L>
jumping 4.2 percent and Royal Bank of Scotland <RBS.L>
advancing 3.7 percent.
The dollar was up against major currencies, with the U.S.
Dollar Index <.DXY> up 0.26 percent at 77.225.
Although the euro retreated, it remained off the six-month
low touched earlier this week on reduced expectations the
European Central Bank will cut interest rates.
Both U.S. and euro zone government debt fell. Dampened
expectations of a ECB rate cut and the solid revision to U.S.
economic growth wiped out initial euro zone debt gains.
The benchmark 10-year U.S. Treasury note <US10YT=RR> fell
12/32 to yield 3.81 percent. The 30-year U.S. Treasury bond
<US30YT=RR> fell 12/32 to yield 4.41 percent.
Oil fell from above $120 a barrel after the International
Energy Agency pledged to help out with additional supply if
Gustav damages U.S. oil installations in the Gulf of Mexico.
The storm is still forecast to reach hurricane status as it
approaches the Gulf of Mexico, home to a quarter of U.S. crude
oil production and 15 percent of its natural gas output.
Gustav is forecast to hit the U.S. Gulf Coast around Monday
and will be the first major hurricane to threaten U.S. energy
installations since hurricanes Katrina and Rita in 2005.
U.S. light sweet crude oil <CLc1> fell $2.40 to $115.75 a
barrel.
Spot gold prices <XAU=> rose $4.30 percent to $830.50 an
ounce, erasing initial gains but still trading higher after
bullion failed to breach resistance at $850 an ounce and as the
dollar retraced earlier losses.
Asian stocks were little changed, but commodity-related
shares received a boost from rising metals prices and also from
crude prices,
Japan's Nikkei share average <> was largely unchanged,
and outside Japan, stocks in the Asia-Pacific region
<.MIAPJ0000PUS> were up 0.5 percent.
(By reporting Steven C. Johnson, Nick Olivari, Chris Reese and
Frank Tang in New York and Jane Merriman and Atul Prakash in
London. Editng by Richard Satran)
