* U.S. stocks turn on report of government home loan plan
* U.S. oil settles below $34, lowest in nearly two months
* U.S. dollar rises, government debt mixed
* Gold hits record highs in sterling terms, Indian futures
(Adds to close of U.S. markets)
By Herbert Lash
NEW YORK, Feb 12 (Reuters) - U.S. stocks turned in late
trade on Thursday on news of a U.S. program to subsidize home
loans, easing investor concerns about the effectiveness of the
Obama administration's recovery plan.
The Dow and S&P 500 cut steep losses after Reuters, citing
sources familiar with the plan, said the Obama administration
is hammering out a program to subsidize mortgage payments for
troubled homeowners, marking a major break with existing aid.
"It's being viewed as a positive both for the mortgage
industry and home building industry as well," said Richard
Sparks, senior equities analyst at Schaeffer's Investment
Research in Cincinnati, Ohio.
The news came as a ray of hope after dismal economic data
from Asia and Europe that pointed to deflation in Japan and
record plunges in industrial output in the euro zone had
weighed on markets for most of the day.
Another glimmer of hope seen in a surprising rebound in
U.S. retail sales in January was viewed as a fluke or
unsustainable at best, and added to investor pessimism sparked
by the scant details in a new U.S. bank rescue plan announced
on Tuesday.
"Many investors perceive the banking bailout package and
the stimulus spending bill (as) poorly designed and too
little," said Andrew Wilkinson, senior market analyst at
Interactive Brokers in Greenwich, Connecticut.
U.S. oil prices fell 5.5 percent to settle at their lowest
in nearly two months, dragged down by swelling crude stocks in
the United States and worries about the global economy.
A flight to safety was the main driver in markets for much
of the day, lifting the U.S. dollar against most currencies and
pushing gold to new highs in Britain and India.
"Risk aversion has returned to the market with full force,"
said Ole Hansen, senior manager with Saxo Bank in Copenhagen.
"That makes people seek out safe havens, which is reflected not
only in the inflows into gold but also the bonds market."
However, the falling risk appetite that fueled strong
demand for U.S. and euro zone government debt for most of the
day reversed course after news of the U.S. home-loan subsidy
plan.
After a volatile day on Wall Street, benchmark stock
indexes were mixed.
The Dow Jones industrial average <> was down 6.77
points, or 0.09 percent, at 7,932.76. The Standard & Poor's 500
Index <.SPX> was up 1.45 points, or 0.17 percent, at 835.19.
The Nasdaq Composite Index <> was up 11.21 points, or 0.73
percent, at 1,541.71.
Gold priced in sterling <XAUGBP=> and gold futures in India
<MAUc1> hit all-time highs, adding to record highs on Wednesday
for bullion in euro, Canadian dollar and Swiss franc terms.
Sliding stock prices have helped bolster gold as investors
move out of equities, a risky asset class, in favour of
bullion, Hansen said.
In Europe banks also were hit by doubts about the U.S.
government's plan to rescue the financial system.
The pan-European FTSEurofirst 300 index <> ended down
1.5 percent at 791.69 points.
BNP Paribas <BNPP.PA> lost 5.5 percent and UBS <UBSN.VX>
fell 3.8 percent.
Capgemini <CAPP.PA> topped the losers. Europe's largest
computer consultancy sank 9.1 percent after warning the global
economic slump would eat into sales and margins in the first
half of this year.
U.S. Treasury debt prices were initially bolstered as
investors fretted over government rescue plans for the
financial industry.
But gains were limited and prices eventually lost ground
even before the news of the home-loan rescue plan, especially
the 30-year long bonds following weak demand at an auction of
the securities.
"I see problems for the Treasury market in the future
because of supply," said Mary Ann Hurley, vice president of
fixed-income trading at D.A. Davidson & Co. in Seattle.
The euro <EUR=> was down 0.28 percent at $1.2859 from a
previous session close of $1.2895. Against the Japanese yen,
the dollar <JPY=> was up 0.52 percent at 90.90 from a previous
session close of 90.430.
U.S. crude <CLc1> dropped $1.96 to settle at $33.98 a
barrel, the lowest since December 19 and extending a losing
streak that has clipped 17 percent off the price in five days.
Brent crude <LCOc1> rose 37 cents to $44.65 a barrel.
"Much of today's pressure on crude still comes from
yesterday's data showing a big jump in U.S. crude supply," said
Andy Lebow, broker at MF Global in New York.
"There is also anticipation that that crude stocks will
continue to build in the weeks to come."
(Reporting by Ellis Mnyandu, Chris Reese, Richard Valdmanis,
Gertrude Chavez-Dreyfuss and Burton Frierson in New York;
Rebekah Curtis, George Matlock, Jan Harvey in London; writing
by Herbert Lash)
