* U.S. stocks rebound, led by banking shares
* Oil bounces back above $72 as Wall Street gains
* Bonds slip despite solid auction as stocks rebound
* U.S. dollar slumps to multiweek lows versus yen, euro
(Updates with close of U.S. markets)
By Herbert Lash
NEW YORK, Aug 27 (Reuters) - U.S. equities rebounded on
Thursday, lifted by financial stocks, while crude oil bounced
off two days of declines on the turn in Wall Street sentiment.
The dollar fell to multiweek lows against the yen and euro.
At the same time, commodity-linked currencies rallied as the
rebound in stocks and oil prices quieted for the moment worries
about the strength of the global economy. <For related news
click []>.
U.S. Treasuries slipped as the turnaround on Wall Street
sapped the attraction of safe-haven government debt, even after
a solid sale of government notes inspired optimism among bond
investors. [].
Investors calmly digested the government's issuance of $109
billion in new Treasury bonds this week, which assuaged ongoing
concerns about the burgeoning amount of U.S. debt.
Financial shares led the turnaround in equities, rising 1
percent as measured by the S&P financial index <.GSPF>, with
Citigroup <C.N> gaining 9.1 percent to $5.05.
"This morning we were down 1 percent and we saw some
immediate reaction from the banking sector, especially
Citigroup," said Steve Goldman, market strategist at Weeden &
Co in Greenwich, Connecticut. "So that helped to stem the
declines."
Shares of insurance company American International Group
Inc <AIG.N> soared 27 percent to $47.84.
The Dow Jones industrial average <> closed up 37.11
points, or 0.39 percent, at 9,580.63. The Standard & Poor's 500
Index <.SPX> rose 2.86 points, or 0.28 percent, at 1,030.98.
The Nasdaq Composite Index <> climbed 3.30 points, or 0.16
percent, at 2,027.73.
The late afternoon rally took U.S. stocks back to levels
last seen in October.
In currency markets the euro rose to a three-week high
against the dollar. Low volume, typical of August, was
responsible for the strength of the reversal, traders said.
"It's a late August market. People were long dollars and
got squeezed when U.S. stocks recovered," said Brian Dolan,
chief strategist at Forex.com in Bedminster, New Jersey.
The upbeat turn in financial markets overshadowed a growing
sense among investors that recent asset price gains and
optimism about a world recovery have been overdone.
"Risk assets are not rallying as they have, and there's a
sense of lethargy setting in that certainly suggests enthusiasm
is waning," Dolan said.
Crude oil was supported by Wall Street's rebound and losses
in the dollar. []
U.S. crude for October <CLc1> rose $1.06 to settle at
$72.49 a barrel after dipping as low as $69.83 earlier in the
day on worries about high commercial crude inventories and weak
demand. Brent crude <LCOc1> rose 86 cents to $72.51.
"As things stand, the underlying influence of equities and
the dollar remain in place," said Tom Knight, trader at Truman
Arnold in Texarkana, Texas.
The $28 billion sale of seven-year U.S. government debt
went well, but bonds dipped into negative territory when stocks
came back from the day's lows. Earlier in the week, the
government auctioned two- and five-year notes.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was
down 8/32 in price to yield 3.46 percent.
"People are relieved that we went through all three
auctions and everything went pretty well," said Rick Klingman,
managing director of Treasury trading at BNP Paribas in New
York.
"But with stocks going positive there is just really no
follow-through," Klingman said.
The euro rose 0.8 percent to $1.4360 <EUR=>, surging higher
as a U.S. stock rebound triggered automatic buy orders against
the dollar. It had fallen as low as $1.4220 earlier.
The euro was down 0.1 percent at 134.18 yen <EURJPY=>, but
well off a session low of 132.94 yen.
Earlier in Europe regional shares closed lower in a choppy
session after banking stocks retreated from earlier gains and
chemical makers slipped. []
The pan-European FTSEurofirst 300 <> index of top
shares closed down 0.5 percent at 968.67 points.
Shares in Japan fell 1.6 percent after the Nikkei average
<> hit a 10-month closing high the previous day.
The MSCI index of Asia-Pacific shares excluding Japan
<.MIAPJ0000PUS> dropped 0.5 percent.
(Reporting by Richard Valdmanis, Steven C. Johnson, Rodrigo
Campos and Burton Frierson in New York; Jessica Mortimer, Jon
Hopkins and Joanne Frearson in London; writing by Herbert Lash;
Editing by Kenneth Barry)
