(Adds with close of U.S. markets)
By Herbert Lash
NEW YORK, April 7 (Reuters) - U.S. stocks pared solid gains
to close little changed on Monday after a jump in crude oil
raised fears about corporate profits and curbed enthusiasm
that a potential capital infusion at the largest U.S. thrift
may mean the worst of a worldwide credit crisis is over.
Gold futures rallied to a one-week high as rising crude
prices stirred inflation fears, while the dollar rose.
U.S. Treasury debt prices slid as a perceived ebbing of the
credit crisis that has battered financial markets for months
cut demand for low-risk investments.
Many investors shifted their focus away from the recovering
financial sector to the first-quarter earnings reporting
period, which begins in earnest after the close with the
release of Alcoa Inc <AA.N> results.
Speculation that the U.S. recession will be mild, the
credit crisis is winding down and third-quarter earnings will
be great was tested on Monday, the first day of the
first-quarter reporting season.
"Those assumptions will face a reality check as companies
report first-quarter earnings over coming weeks, beginning
tonight with Alcoa, and as you get second-quarter guidance,"
said Jim Awad, chairman of W.P. Stewart & Co. Ltd. in New York.
"It's likely that the Fed created a bottom but that doesn't
mean we're off to the races. There will probably be more pain
to come," he said.
Alcoa <AA.N> shares were the biggest drag on the Dow,
falling 4 percent and contributing more than double that of any
other component of the 30-share index.
Other industrial shares suffered as oil prices rose to just
shy of a new record as several refineries prepared for the U.S.
summer driving season, boosting supply concerns. GE <GE.N> also
fell, making it the top drag on the S&P.
The Dow Jones industrial average <> closed up 3.01
points, or 0.02 percent, at 12,612.43. The Standard & Poor's
500 Index <.SPX> rose 2.14 points, or 0.16 percent, to
1,372.54. The Nasdaq Composite Index <> gained 6.15
points, or 0.26 percent, to 2,364.83.
Major U.S. stock indices spent most the session holding
solid gains on news that Washington Mutual Inc <WM.N> was close
to securing a $5 billion cash infusion. That fed market hopes
that the Federal Reserve in mid-March had stabilized markets by
helping JPMorgan Chase to take over Bear Stearns.
Financial stocks helped shares in Europe close higher after
Merrill Lynch raised Swiss bank UBS <UBSN.VX><UBS.N> to a
"buy."
Euro zone government bonds fell, pushing the 10-year yield
to near six-week highs as investors who are increasingly
confident that the worst of the credit crisis may be nearing an
end turned to riskier assets like stocks.
"We had a good performance by Asian equities overnight,
which itself is indicative of resurgent risk appetite ...
Equity strength has continued in Europe and the U.S., which has
taken the shine off the now characteristic safe-haven bid for
fixed income," said Richard McGuire, fixed income strategist at
RBC Capital Markets.
European shares advanced as rising metals prices and a
favorable research note boosted mining stocks, while reasonable
stock valuations made shares in Europe attractive.
European shares trade at a price-to-earnings ratio of about
10 and a dividend yield of about 3.5 percent, said Dennis
Nacken, capital markets analyst at Allianz Global Investors.
Shares in diversified miner Anglo American <AAL.L> rose
nearly 4 percent after Goldman Sachs added the stock to its
"conviction buy" list and upgraded the European metals and
mining sector to "attractive" from "neutral."
The DJ Stoxx basic resources index <.SXPP> rose 3.1
percent, making it the day's top sectoral performer.
The FTSEurofirst 300 index <> of top European shares
closed unofficially 0.8 percent higher at 1,329.37 points,
having risen by more than 4 percent last week.
Asian shares also gained, with resources companies
benefiting from stronger metals and oil prices.
Tokyo's Nikkei <> rose 1.3 percent, while stocks
elsewhere in Asia, as measured by MSCI's index <.MIAPJ0000PUS>
gained 1.06 percent. Asia ex-Japan stocks are still down 10
percent this year.
Before U.S. stocks slid late in the session, a global stock
rally reversed Friday's rush into bonds after a government
report showed U.S. payrolls suffered their biggest monthly loss
in five years in March.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was
down 25/32 to yield 3.5621 percent. The 2-year U.S. Treasury
note <US2YT=RR> fell 8/32 to yield 1.9441 percent. The 30-year
U.S. Treasury bond <US30YT=RR> was down 30/32 to yield 4.3644
percent.
Oil rose nearly $3, just past $109 a barrel as a fire at a
Neste Oil refinery in Finland stirred fuel supply concerns.
The news pushed prices for London gas oil, a distillate
fuel closely related to diesel and heating oil, to a record
$1,005 a tonne and led U.S. heating oil and crude prices
sharply higher in New York, dealers said.
"It's the gas oil situation in Europe that's pushing up
NYMEX heating oil," said Tom Knight, a trader at Truman
Arnold.
U.S. crude <CLc1> settled up $2.86 to $109.09 a barrel
after touching $109.48 earlier in the day. London Brent crude
<LCOc1> settled $2.24 higher at $107.14 a barrel.
New York gold futures rallied to a one-week high as rising
crude oil prices stirred inflation fears and the International
Monetary Fund was set to announce plans to consider revamping
its income model by selling part of its gold.
Gold for June delivery <GCM8> settled up $13.60, or 1.5
percent, at $926.80 an ounce.
Currency traders said they were reluctant to buy the euro
aggressively ahead of Thursday's European Central Bank policy
meeting and the G7 nations' gathering late in the week.
The dollar rose against a basket of major trading-partner
currencies, with the U.S. Dollar Index <.DXY> up 0.37 percent
at 72.199.
The euro <EUR=> fell 0.20 percent to $1.5704, while against
the yen, the dollar <JPY=> rose 0.91 percent to 102.44.
While sentiment toward the dollar had improved, worries
about the overall health of the U.S. economy continued to cast
a pall over the market, restricting the greenback's gains, they
said.
"Ahead of the G7 and ECB (meetings), people are not going
to get aggressive in terms of buying the euro," said Brian
Dolan, chief currency strategist at Forex.com in Bedminster,
New Jersey.
(Reporting by Ellis Mnyandu, Lucia Mutikani, Kevin Plumberg,
Matthew Robinson, Chris Reese, John Parry and Richard Leong in
New York and Bate Felix, Atul Prakash and Peter Starck in
London; Editing by Dan Grebler)
