* US stocks jump after Wall Street's worst day in 20 years
* Dollar rises over 2 pct vs yen; oil adds $2 a barrel
* Cautious optimism in markets despite bailout's rejection
* Bonds fall as hope of eventual bailout cuts safety bids
(Adds close of European markets, updates prices)
By Herbert Lash
NEW YORK, Sept 30 (Reuters) - The U.S. dollar surged and
global stocks clawed back on Tuesday from Wall Street's worst
day in 20 years as investors bet Washington will eventually
pass a plan to rescue the troubled financial sector.
U.S. and euro zone government debt prices slipped, paring
Monday's frantic charge into safe-haven securities. Gold also
retreated as the dollar's surge prompted profit-taking on sharp
gains after Congress rejected the banking sector bailout plan.
Oil rebounded more than $2 a barrel toward $99 after nearly
a 10 percent drop the previous day as fear of a major meltdown
in capital markets eased and hope among investors returned.
The dollar jumped 2 percent against the yen <JPY=> and 3
percent against the Swiss franc <CHF=> as cautious optimism
Congress will approve a $700 billion plan to bail out banks
replaced the shock after U.S. lawmakers rejected the bill.
Strong readings on U.S. consumer confidence and Chicago
PMI, a measure of manufacturing activity in the U.S. Midwest,
boosted equities and further curbed the appeal of debt. The two
September reports tempered fears about the economy's health.
"There are at least some hints of optimism that something
will still happen soon with regards to the bill," said Jim
Dunigan, managing executive of investments at PNC Wealth
Management in Philadelphia. "All eyes are still on
Washington."
U.S. stocks rose more than 3 percent, before paring some
gains, adding to investor optimism after equity markets in
Europe also added solid gains. The defeat in Congress buzzed
nearly 9 percent off the broad S&P 500 on Monday.
Before 1 p.m. (1700 GMT), the Dow Jones industrial average
<> was up 243.00 points, or 2.34 percent, at 10,608.45. The
Standard & Poor's 500 Index <.SPX> was up 33.34 points, or 3.01
percent, at 1,139.73, and the Nasdaq Composite Index <>
was up 60.30 points, or 3.04 percent, at 2,044.03.
Investors snapped up beaten-down shares, with shares of
financial companies, including JPMorgan Chase <JPM.N>, up 12
percent, among the standouts.
Technology shares also bounced back, with Apple Inc
<AAPL.O> the top boost on Nasdaq, a day after the tech-rich
index posted its worst day since April 2000 when the dot-com
bubble burst.
Talk that U.S. lawmakers may reach some kind of agreement
by the end of the week and speculation that central banks could
slash interest rates tempted investors back into markets.
"A lot will hinge on the passage of a rescue plan, the
sooner the better. It remains an uncertainty in the market,"
said Kevin Mahn, chief investment officer at Hennion & Walsh
Inc in Parsippany, New Jersey.
U.S. President George W. Bush said the legislative process
on the bailout plan was not over and the economy depended on
"decisive action" from the government.
European shares closed higher on Tuesday, bouncing from
Monday's 3-1/2-year closing low.
The FTSEurofirst <> index of leading European shares
ended up 1.59 percent at 1,063.65. Banks added the most points
to the index, with HSBC <HSBA.L> up 4.2 percent and Standard
Chartered <STAN.L> jumping 8 percent.
U.S government debt fell.
The benchmark 10-year U.S. Treasury note <US10YT=RR> fell
1-17/32 in price to yield 3.76 percent, and the 2-year U.S.
Treasury note <US2YT=RR> fell 19/32 to yield 1.92 percent.
The yield on one-month T-bills <US1MT=RR>, which investors
see as almost as good as cash, dipped closer to zero in early
trading, a sign investors were still willing to earn close to
nothing in return for not losing their shirts.
One goal of the failed bailout was to thaw credit markets,
lower borrowing costs and unleash funds to banks, companies and
consumers. With a rescue plan in limbo, interest rates in the
interbank market soared, another sign all was still not well.
The yield on the London interbank offered rate (Libor) on
overnight dollar funds jumped the most in any day on record,
rising to 6.87 percent, according to Reuters data. It was the
highest Libor rate, which is a reference for trillions of
dollars of auto loans and corporate debt, in at least 7-1/2
years.
U.S. light sweet crude oil <CLc1> rose $3.07 to $99.44 a
barrel.
Spot gold prices <XAU=> fell $24.45 to $878.80 an ounce.
Asian stocks fell, chalking up the biggest monthly decline
in more than a decade, but didn't match the meltdown on Wall
Street. Japan's Nikkei share average <> closed down 4.1
percent to a three-year low, and the MSCI index of Asia-Pacific
stocks outside Japan <.MIAPJ0000PUS> fell 2.73 percent.
(Reporting by Ellis Mnyandu, Chris Reese, Nick Olivari and
Richard Leong in New York and Jessica Mortimer, Brian Gorman,
Alex Lawler and Jane Merriman in London; Editing by James
Dalgleish)
