* MSCI world equity index up 1.6 percent
* European, U.S. shares gain on bargain hunting
* Dollar declines broadly
(Updates with U.S. close)
By Al Yoon
NEW YORK, July 6 (Reuters) - World stocks posted their
biggest one-day gain in nearly a month on Tuesday after recent
drubbings pushed shares to attractive levels, while the euro
rose as investors waded back into risky assets.
Gains were tempered late in the U.S. trading day, however,
as a slowdown in growth in the U.S. service sector weighed on
sentiment. Worries about the possibility of a double-dip
recession, which has been dogging financial markets,
persisted.
Despite mixed reports, MSCI's all-country world stock index
<.MIWD00000PUS> jumped 1.6 percent, after last week plumbing
its lowest point since May 25.
The euro rose against the dollar as risk appetite increased
after Australia's central bank gave an upbeat assessment for
Asia and for the Australian economy.
But crude oil prices fell, unable to hold earlier advances,
after equities pared gains. And gold hit six-week lows after
the precious metal fell below key support of $1,200 an ounce.
"A lot of people got excited about how cheap things have
gotten," said Stephen Massocca, managing director of Wedbush
Morgan in San Francisco.
"Absolutely nobody believes in the rally, at least the ones
we'll be seeing for now. The market sentiment is bearish and
there is no doubt that the economic recovery is slowing down."
The Institute for Supply Management, a U.S. business group,
said its index of non-manufacturing activity grew in June for a
sixth straight month, though the pace of expansion was its
slowest since February. Some analysts on Tuesday said the data
on the U.S. service sector, which dominates the U.S. economy,
did not suggest a double-dip recession was on the horizon.
"The change in direction is serious," said Joseph
Trevisani, chief market analyst at FX Solutions in Saddle
River, New Jersey. "Statistics do not yet indicate a recession
but the mood is worrying."
In New York, the Dow Jones industrial average <> rose
57.14 points, or 0.59 percent, to 9,743.62. The Standard &
Poor's 500 Index <.SPX> gained 5.48 points, or 0.54 percent, to
1,028.06 and the Nasdaq Composite Index <> edged higher by
2.09 points, or 0.10 percent, to 2,093.88.
The S&P fell every day last week and is down 8.3 percent
since December. Signs of weakness in the labor and housing
markets as well as a potential slowdown in manufacturing have
sparked worries.
U.S. stocks on Tuesday were supported in anticipation of a
$22 billion initial public offering by the Agricultural Bank of
China. The IPO, which could set a world record, is seen as a
key test of investor sentiment.
Comments from a member of the European Central Bank
Governing Council, Christian Noyer, relieved concerns about the
health of French banks. Noyer said the sector is likely to pass
Europe-wide stress tests later this month. For details, see
[]
U.S. and European banking shares were higher on Tuesday,
with financial stocks one of the best-performing sectors on the
S&P 500. Bank of America Corp <BAC.N> shares gained 1.6 percent
at $14.06 and the KBW bank index <.BKX> rose 1.2 percent.
The FTSEurofirst 300 <> closed up 2.6 percent at
991.23 points, bouncing back from six-week closing lows.
French banks Societe Generale <SOGN.PA>, Credit Agricole
<CAGR.PA> and BNP Paribas <BNPP.PA> jumped 4.2 to 6.3 percent.
Mining stocks were also in demand. The STOXX Europe 600
Basic Materials <.SXPP> rose 5.1 percent after slipping on
Monday. The sector has been recently hammered by worries over
the pace of the global economy.
Shares of BP <BP.L> rose 3.7 percent as the company said it
had no plans to issue stock and talk persisted of sovereign
wealth fund interest in the British oil major.
"Markets are a bit oversold. The decline has been quite
strong," said Joost de Graaf, senior portfolio manager at
Kempen Capital Management in The Netherlands. "There are hopes
that second-quarter earnings will be OK and will lift some of
the negative atmosphere."
The MSCI world index is still down almost 10 percent for
the year. World stocks weakened Monday. U.S. markets were
closed on Monday for the Independence Day holiday.
Japan's Nikkei <> closed up nearly 1 percent, coming
off a seven-week low. Emerging market stocks <.MSCIEF> jumped 2
percent.
DOLLAR HIT
The more risk-friendly mood hit the dollar, which fell
about two-third of a percent against a basket of major trading
partner currencies <.DXY>.
The Australian dollar rallied after the Reserve Bank of
Australia's upbeat assessment of the global economy spurred
appetite for high-yielding currencies. The rising risk demand
also boosted the euro.
Australia's central bank held its key interest rate at 4.5
percent. []
"Although Australian monetary officials acknowledged the
fact that global growth was slowing, they nevertheless remained
positive regarding economic activity in the Asia Pacific," said
Boris Schlossberg, a director for currency research at GFT
Forex in New York.
The euro <EUR=> rose 0.65 percent at $1.2620. Against the
Japanese yen, the dollar <JPY=> declined about a third of a
percent to 87.47 yen.
While investors in most markets signaled rising risk
appetite, U.S. Treasury debt prices rose as traders added to
bets that the Federal Reserve will cling to an easy monetary
policy into the second half of 2011 in a bid to avert a
double-dip recession.
In the wake of Friday's U.S. jobs report showing a payroll
loss for the first time this year, safe-haven appetite for
bonds persisted despite the stocks rebound on Wall Street.
Yields on benchmark 10-year U.S. Treasury notes declined
0.04 percentage point to 2.94 percent.
In commodities, U.S. crude oil futures <CLc1> fell 16
cents, or 0.2 percent, to settle down at $71.98. Spot gold
<XAU=> fell $15.35, or 1.27 percent, to $1,192.60 an ounce.
(Additional reporting by Richard Leong, Edward Krudy, Angela
Moon and Vivianne Rodrigues in New York and Brian Gorman and
Naomi Tajitsu in London; Editing by Leslie Adler)
