* Stocks rebound on talk key accounting rule to see change
* Government debt prices rise on weak U.S. economic data
* Euro falls vs dollar after ECB chief hints at rate cut
* Oil rebounds on turn in U.S. equity markets
(Recasts with U.S. markets; changes dateline; previous
LONDON)
By Herbert Lash
NEW YORK, Feb 5 (Reuters) - More signs of deep recession
hit markets on Thursday, dragging oil and stock prices down,
but talk that a U.S. rescue plan for banks may alter a key
accounting rule later lifted both the dollar and Wall Street.
The U.S. dollar rose to near a one-month high against the
yen as a rally in U.S. stocks dimmed its appeal as a safe
haven. A warning from the European Central Bank that the euro
zone was undergoing an extended downturn helped weaken the
euro.
Oil prices at first fell as data showed U.S. jobless claims
hit a 26-year high while German manufacturing and industrial
production in Spain both slumped, providing fresh evidence that
the developed world is falling into a prolonged recession.
But U.S. stocks rallied after financial services companies
cut steep losses on news the U.S. Senate might suspend
mark-to-market accounting for tainted banking assets. The rule
has forced banks to report billions of dollars in write-downs.
"The market suspects there may be a suspension of
mark-to-market accounting as part of the plan coming out of
Washington to shore up the financial system," said Peter Kenny,
managing director at Knight Equity Markets in Jersey City, New
Jersey. "It would be very impactful."
Sen. Christopher Dodd, chairman of the Senate Banking
Committee, said late Wednesday that it might be possible to
modify the accounting rule without abandoning its underlying
standard.
Shares of Bank of America <BAC.N>, which at one point had
fallen to lows last seen in 1984, cut losses of almost 20
percent to trade down just 4.3 percent.
The KBW bank index <.BKX> sharply pared losses of as much
as 6.8 percent to trade higher about 1.5 percent.
The Dow Jones industrial average <> rose 122.42 points,
or 1.54 percent, at 8,079.08. The Standard & Poor's 500 Index
<.SPX> gained 16.12 points, or 1.94 percent, at 848.35. The
Nasdaq Composite Index <> added 29.35 points, or 1.94
percent, at 1,544.40.
European shares fell, led by financials, as bleak economic
data bode ill for corporate earnings prospects.
The pan-European FTSEurofirst 300 index <> closed 0.1
percent lower at 810.49 points, well above its intra-day low
after U.S. stocks rallied.
Stocks shrugged off monetary policy decisions by the Bank
of England, which cut its base interest rate by 50 basis points
to a record low 1.0 percent, and the European Central Bank,
which left key rates unchanged as expected.
Reinsurer Swiss Re <RUKN.VX> posted a full-year net loss of
around a billion Swiss francs and its stock tumbled 28 percent.
Swiss Re said Warren Buffett's Berkshire Hathaway was investing
three billion Swiss francs ($2.63 billion) in the company.
European government bonds rallied, pushing the two-year
yield to a two-week low, after the ECB Jean-Claude Trichet said
zero interest rates were not something the bank considered
"appropriate," which also helped limit euro losses.
However, the ECB signaled it may resume a monetary easing
cylce in March.
"The message from Trichet was not particularly exciting,
but clearly it's an environment that clearly supports lower
rates," said Gianluca Salford, European fixed income stategist
at JPMorgan in London.
The benchmark U.S. 10-year Treasury note pared gains and
turned flat on Wall Street's rally, curbing a safe-haven bid
for bonds.
The price on 10-year government debt <US10YT=RR> was
briefly unchanged at 106-24/32, below the session high of
107-18/32. The yield, which moves inversely to its price, was
2.93 percent, up from a session low of 2.86 percent.
Economic data initially pushed oil down. The U.S. Labor
Department said first-time claims for unemployment insurance
benefits rose to 626,000, well above what analysts expected.
"The number of jobless people keeps mounting and this will
weigh again on the energy complex," said Phil Flynn, an analyst
at Alaron Trading in Chicago.
Oil later turned on rising U.S. stock prices.
U.S. light sweet crude oil <CLc1> rose 43 cents to $40.75 a
barrel.
Spot gold prices <XAU=> rose $4.65 to $910.05 an ounce.
Deepening concerns about a drop in U.S. consumer demand
helped push MSCI's index of Asia-Pacific stocks outside Japan
<.MIAPJ0000PUS> down 0.4 percent, while Japan's Nikkei average
<> slipped 1.1 percent.
(Reporting by Ellis Mnyandu, Richard Leong and Vivianne
Rodrigues; Lucia Mutikani in Washington; Chris Baldwin and
Naomi Tajitsu in London and Peter Starck in Frankfurt; writing
by Herbert Lash)
