(Corrects 16th par to say euro, not dollar near record high)
By Jeremy Gaunt, European Investment Correspondent
LONDON, July 22 (Reuters) - Weak corporate earnings hit
European stocks on Tuesday, eclipsing large gains in Japan,
while oil rose despite a diminishing threat to U.S. production
from Tropical Storm Dolly.
The dollar was steady against major currencies but euro zone
government bonds gained on the volatility in equity markets.
European shares fell sharply in early trading, weakened by
disappointing overnight results from U.S. companies American
Express <.AXP.N> and Apple <AAPL.O>, which reflected the whole
nature of the U.S. economic downturn.
The FTSEurofirst 300 index <> of top European shares
lost 1.2 percent, also dragged lower by a warning from Vodafone
<VOD.L>, the world's largest mobile phone company by sales.
Vodafone released in-line revenues for the first-quarter but
spooked investors by saying it expected full-year revenue to be
around the bottom of its previously stated range due to economic
weakness. Its shares shed 12.4 percent.
"We have claimed back quite some ground from our lows during
recent sessions. The earnings season ... is entering a more
decisive phase here so I think the focus will be on individual
stocks," said Christian Falkner, asset manager at Alpha Trading
in Frankfurt.
The FTSEurofirst has closed higher for the past four
sessions.
Earlier, Japan's Nikkei stock average jumped 3 percent as
banks caught up with sentiment that the direst projections for
the industry were unlikely to be met.
The bourse was closed on Monday.
The benchmark <> ended up 381.26 points at 13,184.96,
while the broader Topix <> rose 2.8 percent to 1,287.74.
GOODBYE DOLLY
Oil prices, which had been rising after last week's tumble,
were up, although Tropical Storm Dolly looked likely to miss
major U.S. oil and gas installations, easing fears of supply
disruptions from the first big storm threat of 2008.
Forecasters still expected Dolly to grow into a hurricane
before hitting land near the Mexican border later this week and
said it could threaten some coastal refineries later in the
week, limiting the extent of crude's losses. []
U.S. light crude for August delivery <CLc1> was up 88 cents
at $131.92 a barrel. It gained more than $3 a barrel on concerns
over Dolly in the previous session.
The dollar was stuck near record lows versus the euro,
pinned by lingering worries about the U.S. financial sector.
"Without any big numbers, it is equity markets that is
driving currencies," said Niels Christensen, FX strategist at
Nordea in Copenhagen.
The euro was steady at $1.5921 <EUR=>, just over a cent off
the all time high of $1.6038 set last week, according to Reuters
data.
The euro was steady at 169.60, close to an all-time high of
169.92 set on Monday <EURJPY=>. The dollar gained 0.15 percent
to 106.55 yen <JPY=>.
Euro zone government bonds rebounded, snapping four straight
sessions of steep declines with the fall in European stocks
helping revived appetite for safe-haven government debt.
"We're seeing a setback for stocks and that's offering
support for government bonds with flight to quality trade
supporting the short-end of the curve," said Patrick Jacq, euro
zone interest rate strategist at BNP Paribas in Paris.
The two-year Schatz yield <EU2YT=RR> fell 6 basis points to
4.562 percent, a day after hitting a two-week peak of 4.647
percent. The 10-year Bund yield <EU2YT=RR> was down 3 basis
points at 4.606 percent.
(Editing by Mike Peacock)
