(Adds close of U.S. markets)
* U.S. stocks reverse plunge on GM sales, bargain hunting
* Oil shy of new record as Mideast, supply concerns weigh
* Dollar pares losses on GM sales, manufacturing data
Debt prices slip amid hints of economic silver linings
By Herbert Lash
NEW YORK, July 1 (Reuters) - Surprisingly strong sales at
struggling General Motors on Tuesday helped Wall Street shrug
off worries about higher oil prices and the credit-crunched
banking sector that have pushed it to the brink of a bear
market.
The stronger-than-expected sales at GM forced government
debt prices that had gained on a flight to safety bid to turn
lower. The dollar fell against the euro in a volatile session
as investors debated the outlook for the U.S. economy.
Crude oil rose to a new settlement high. Forecasts that
global supplies will struggle to keep pace with demand and
concerns over tensions between Israel and Iran pushed up
prices.
The release of U.S. auto sales for June swept away a dour
mood among investors that initially pushed U.S. equity markets
down more than 1 percent, especially the hard-hit financial
sector, and cap a roller-coaster day on Wall Street.
A report that showed U.S. factory activity expanded in June
for the first time in five months initially offset worries
about rising energy prices and helped stocks rise as investors
scoured for bargains among beaten-down sectors.
Stocks later turned lower as the aversion to risk gripped
investors, before bouncing back on the GM sales report that
sent its shares up as much as 10 percent, before paring gains.
A month-end clearance sale helped GM retain its No. 1 spot
in U.S. auto sales and avoid the wipeout many analysts had
feared. Sales fell by a more limited margin industrywide than
the most bearish forecasts, helping stocks turn around.
"Two letters: GM. We're oversold and so with so many
people looking for that bounce, any news that is a little
better than expected is going to get a bit of a rebound going,"
said Joe Saluzzi, co-manager at Themis Trading in Chatham, New
Jersey.
"People were just looking for a reason to jump in and buy
the beaten-down stocks."
The Dow Jones industrial average <> added 32.25 points,
or 0.28 percent, at 11,382.26. The Standard & Poor's 500 Index
<.SPX> rose 4.91 points, or 0.38 percent, at 1,284.91. The
Nasdaq Composite Index <> gained 11.99 points, or 0.52
percent, at 2,304.97.
European stocks fell sharply, ending at their lowest close
since October 2005, as jitters about further asset write-down
came back to haunt the banking sector and rising oil prices
continued to exacerbate inflation fears.
Banks took yet another beating. Among the largest banks,
UBS <UBSN.VX> hit 10-year lows, down 5.3 percent, while
Deutsche Bank <DBKGn.DE> lost 4.2 percent.
Italy's Banca Popolare di Milano <PMII.MI> was the only
component of a 62-stock Dow Jones European banking index
<.SX7R> to close higher, up 0.7 percent. The index fell almost
3 percent, and is down 46 percent since peaking in June 2007.
The FTSEurofirst 300 <> index of top European shares
closed 2.2 percent lower at 1,175.55 points. The index, down
seven of the last 10 sessions, has tumbled 22 percent in 2008.
"The impact from the U.S. subprime market debacle is far
from over, especially for retail banks and insurers, while
investment banks have already unveiled big write-downs," said
Romain Boscher, head of equity management at Groupama Asset
Management, in Paris.
The yen had climbed broadly in early trading, benefiting
from an aversion to risk as heightened fears of further losses
in the banking sector and global stocks prompted investors to
sell dollars.
The dollar fell against the euro in anticipation of a rate
hike from the European Central Bank later this week.
The dollar fell against major currencies, with the U.S.
Dollar Index <.DXY> down 0.14 percent at 72.374. Against the
yen, the dollar <JPY=> rose 0.01 percent at 106.10.
The euro <EUR=> rose 0.22 percent at $1.5789.
"It's range-bound behavior in anticipation of the ECB rate
hike," said Michael Woolfolk, senior currency strategist at The
Bank of New York Mellon. "People are looking for an excuse to
buy euros and sell dollars."
U.S. government debt prices slipped as equity investors
overcame fears about the banking sector on hints of silver
linings amid the prevailing economic gloom.
U.S. Treasury debt prices were lower. The benchmark
10-year U.S. Treasury note <US10YT=RR> fell 6/32 to yield at
4.00 percent. The 30-year U.S. Treasury bond<US30YT=RR> fell
13/32 to yield 4.55 percent.
The Institute for Supply Management report showed that U.S.
manufacturing edged into expansionary territory in June, after
four straight months of contraction.
Oil rose. U.S. crude <CLc1> settled up 97 cents at $140.97
a barrel, after hitting an intraday record high of $143.67 a
barrel on Monday. London Brent crude <LCOc1> gained 84 cents to
settle at $140.67 a barrel.
The International Energy Agency cut its global oil supply
capacity forecast by 2.7 million barrels per day to 95.33
million barrels per day by 2012.
The cut offset downward revisions to expected demand as
high prices bite into fuel use in some consumer nations, such
as the United States.
U.S. gold futures end sharply higher near a 2-1/2-month
peak, extending a sharp rally based on inflation fears and
weakness in global stock markets.
The August contract <GCQ8> for gold in New York settled up
$16.20 at $944.50 an ounce.
Most Asian stock markets fell. Asia-Pacific shares traded
outside of Japan <.MSCIAPJ> dipped 0.8 percent to a three-month
low, according to an MSCI index.
Japan's Nikkei <> share average finished 0.1 percent
lower for its ninth straight loss, shedding nearly 7 percent
during its longest losing streak since September 2004.
(Reporting by Walker Simon, Richard Leong, Chris Reese,
Vivianne Rodrigues in New York; Ikuko Kao and Jan Harvey in
London and Blaise Robinson in Paris)
(Reporting by Herbert Lash. Editing by Richard Satran)
