* U.S., European stocks gain on signs money markets thaw
* Dow on track for its worst month in more than 10 years
* Dollar is broadly firmer; risk aversion boosts yen
* Oil falls below $65 as weak data points to lower demand
* Many financial markets post record misery in October
(Recasts with U.S. markets, changes byline, dateline, previous
LONDON)
By Herbert Lash
NEW YORK, Oct 31 (Reuters) - U.S. and European stocks rose
on Friday, lifted by hopes that a thawing in credit markets
will spur economic growth even as oil and other commodity
prices slumped anew on more evidence of a deepening recession.
The U.S. dollar and yen posted sharp gains as investors
reined in risky bets even after the Bank of Japan joined other
central banks in cutting interest rates, and banks again
trimmed the rates they charge each other to borrow dollars.
Commodity prices were pressured by the stronger dollar and
recession fears as October came to an end in what has been a
month of records on financial markets, many unwelcome.
Oil prices fell almost to $64 a barrel as weak demand and a
global economic crisis that is still creating havoc put crude
on track for its biggest monthly drop ever.
Equities on both sides of the Atlantic shrugged off further
signs of a deep slowdown. U.S. consumers cut spending for the
first time in two years in September and their mood soured
further this month as they braced for tough times ahead.
"There is a tug of war between those who see valuations
that are attractive and those that focus on that we are going
into a pretty bad recession," said Craig Peckham, equity
trading strategist at Jefferies & Company in New York.
The interbank cost of borrowing dollars fell across the
board, according to the latest Libor fixing from the British
Bankers' Association, with the overnight dollar rate falling to
0.40 percent from 0.73 percent, well below the U.S. central
bank's benchmark federal funds rate of 1 percent.
Pension fund buying of stocks to rebalance portfolios at
the end of their fiscal year lent support to the stock market,
traders said.
"The continued easing of the credit markets, as seen in
three-month Libor moving down, is giving some confidence to the
banks," said Michael James, senior trader at regional
investment bank Wedbush Morgan in Los Angeles.
After 1.30 p.m. (1730 GMT), the Dow Jones industrial
average <> was up 219.43 points, or 2.39 percent, at
9,400.12. The Standard & Poor's 500 Index <.SPX> was up 24.92
points, or 2.61 percent, at 979.01. The Nasdaq Composite Index
<> was up 34.77 points, or 2.05 percent, at 1,733.29.
European shares extended a rally to a fourth day, boosted
by oil and drug companies and a late surge in bank shares.
The FTSEurofirst 300 <> index of leading European
companies closed 2.8 percent higher at 928.81.
Among drugmakers, Roche <ROG.VX> jumped 9.6 percent and
Novartis <NOVN.VX> added 5 percent, while oil stocks bounced
from Thursday's losses and banks rallied. Anglo Irish <ANGL.I>
rose 21.4 percent on bargain hunting after recent weakness.
"The general consensus is that it's a dead cat bounce. But
it's too early to say. There's a lot of positive signals coming
from any kind of valuation-based approach," said Gareth
Williams, European equity strategist at ING.
U.S. Treasury prices rose after news that consumers cut
spending for the first time in two years in September and their
mood soured further as they braced for tough times. The data
kept safe-haven government debt in favor among investors.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was up
1/32 in price, with the yield at 3.96 percent. The 2-year U.S.
Treasury note <US2YT=RR> was down 1/32, with the yield at 1.58
percent. The 30-year U.S. Treasury bond <US30YT=RR> was up
3/32, with the yield at 4.33 percent.
The dollar was up against a basket of major trading-partner
currencies, with the U.S. Dollar Index <.DXY> up 0.79 percent
at 85.467 from a previous session close of 84.797.
The euro <EUR=> was down 1.09 percent at $1.2765 from a
previous session close of $1.2906. Against the Japanese yen,
the dollar <JPY=> was down 0.01 percent at 98.60 from a
previous session close of 98.610.
The scope of Thursday's economic data reminded investors
that the outlook is not particularly appealing, said Sebastien
Galy, a currency strategist at BNP Paribas in New York.
"So it's the usual theme we're seeing today," Galy said.
"Whenever the data is poor, we see the dollar strengthening
relative to the euro and commodity currencies. We are still in
a very elevated level of risk aversion."
U.S. light sweet crude oil <CLc1> fell $1.80 to $64.16 a
barrel. Crude fell after the weak U.S. economic data provided
the latest indication of sharply reduced demand for fuel.
"Oil is falling on a poor outlook for demand and the
realization that rate cuts will take a long time to lead to a
recovery," said Christopher Bellew at Bache Commodities.
Gold prices dropped as a dollar rise and a sharp drop of
COMEX open interest took a toll on buying sentiment, signaling
more unwinding of long positions, traders said.
Spot gold <XAU=> fell $12.10 to $723.40 an ounce.
Tokyo's Nikkei average <> extended losses to close
down 5 percent after the Bank of Japan cut interest rates to
0.3 percent, its first rate cut in seven years.
(Reporting by Kristina Cooke, Gertrude Chavez-Dreyfuss and
John Parry in New York and Brian Gorman, Edward McAllister, Ian
Chua and Julie Crust in London; Writing by Herbert Lash;
Editing by James Dalgleish)
