* Stocks rebound on key accounting rule to change
* Dollar follows stocks higher on return in risk appetite
* Government debt prices rise on weak U.S. economic data
* Oil turns higher on rally in U.S. equity markets
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, Feb 5 (Reuters) - U.S. stocks, the dollar and oil
prices rose on Thursday on renewed hopes the Obama
administration will shore up a tattered financial system,
turning around markets that had tumbled on fresh signs of a
deep recession.
The U.S. dollar surged to a nearly one-month high against
the yen after a sharp rebound on Wall Street boosted investors'
appetite for risk as the U.S. Senate neared a vote on President
Barack Obama's rescue package of tax cuts and new spending.
U.S. Treasury debt prices also recovered slightly, as weak
U.S. and euro zone economic data trumped worries over an
expected surge in new issuance, a day before the release of a
widely anticipated payrolls report for January.
A rebound in financial stocks drove Wall Street higher on
market talk that the rescue plan may include the suspension of
a key accounting rule that has forced banks to take billions of
dollars in write-downs on tainted housing-related assets.
"The market reaction is a barometer of how well (a
suspension) could impact market psychology and market value,"
said Peter Kenny, managing director at Knight Equity Markets in
Jersey City, New Jersey.
Fears about the plight of the banking system early in the
session pushed the Dow to its lowest level since the bear
market low was set on Nov. 21 last year.
Leading the plunge were shares of Bank of America <BAC.N>,
which at one point fell to lows last seen in 1984. Bank of
America cut losses of almost 20 percent to end up 3 percent.
The KBW bank index <.BKX> sharply pared losses of as much
as 6.4 percent to close up 1.8 percent.
Expectations that U.S. fiscal stimulus could loosen up
lending and help boost consumer and business spending also
propelled technology shares. Microsoft <MSFT.O>, Cisco Systems
<CSCO.O> and Apple <AAPL.O> were the top boosts on the Nasdaq.
On the Dow, Wal-Mart Stores <WMT.N> was the biggest
contributor to the index's rise, jumping 4.6 percent after the
retail discounter posted solid January sales.
The Dow Jones industrial average <> rose 106.41 points,
or 1.34 percent, at 8,063.07. The Standard & Poor's 500 Index
<.SPX> gained 13.61 points, or 1.64 percent, at 845.84. The
Nasdaq Composite Index <> added 31.19 points, or 2.06
percent, at 1,546.24.
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.
European 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.
The improved risk sentiment also helped the euro recover
from earlier losses versus the dollar that were sparked by
European Central Bank President Jean-Claude Trichet, who said
the euro zone was undergoing an extended downturn.
The dollar rose against a basket of major currencies, with
the U.S. Dollar Index <.DXY> up 0.27 percent at 86.002. Against
the yen, the dollar <JPY=> was up 1.83 percent at 91.10.
The euro <EUR=> fell 0.25 percent at $1.2796.
Economic data pointed to further deterioration in jobs and
factories, confirming that the United States remains mired in a
deep recession and stoking the safe-haven appeal of lower-risk
government debt.
The benchmark 10-year U.S. Treasury note <US10YT=RR> rose
4/32 in price to yield 2.93 percent. The 30-year U.S. Treasury
bond <US30YT=RR> rose 16/32 to yield 3.65 percent.
U.S. crude <CLc1> settled 85 cents higher at $41.17 a
barrel. London Brent crude <LCOc1> rose $2.31 to settle at
$46.46 a barrel.
"Stocks turned around, but the ability of the oil market to
hold $40 the last few days shows there is a little bit of
sentiment that things might be improving," said Gene McGillian,
analyst at Tradition Energy in Stamford, Connecticut.
Gold for April delivery <GCJ9> settled up $12.00 at $914.20
an ounce in New York.
(Reporting by Rodrigo Campos, Matthew Robinson, Chris Rees and
Wanfeng Zhou; Lucia Mutikani in Washington; Naomi Tajitsu in
London and Peter Starck in Frankfurt; writing by Herbert Lash)
