* China refutes report that reviewing euro bond holdings
* Bargain-hunters push U.S. shares up sharply
* Microsoft helps drive Nasdaq to a near 4 percent gain
* Oil rises more than 4 pct for 2nd straight day
(Updates with New York close, adds comment, detail)
By Daniel Bases
NEW YORK, May 27 (Reuters) - The euro staged a broad rally
and U.S. stocks jumped about 3 percent on Thursday, after China
said Europe remains a key investment market for its
foreign-exchange reserves.
The People's Bank of China said a Financial Times report
that Beijing was concerned about its euro-zone bond holdings
due to the European debt crisis was groundless. The report had
driven the euro to a near four-year low on Wednesday and cut
short a rally in U.S. stocks.
Stocks in Europe and emerging markets also jumped and crude
oil prices jumped 4 percent as the perceived risk that China
might change the composition of its foreign exchange reserves
was reduced.
"Reports from the front suggested that investors might
become frightened that China could do something drastic," said
Douglas Peta, an independent market strategist in New York.
"Getting some assurance that Chinese sales of European
sovereign debt isn't imminent is making everyone feel better."
European shares closed above the 1,000 mark for the first
time in just over a week while government debt prices fell as
the bid for safety ebbed. Stocks in emerging markets also
surged, with Brazil shares up more than 3 percent.
Bargain hunters picked through stock markets that had been
beaten down by fears that Europe's debt crisis could spark a
credit crunch and undermine the global economic recovery.
At the close of trade, the Dow Jones industrial average
<> gained 284.54 points, or 2.85 percent, to 10,258.99. The
Standard & Poor's 500 Index <.SPX> rose 35.11 points, or 3.29
percent, to 1,103.06. The Nasdaq Composite Index <>
climbed 81.80 points, or 3.73 percent, at 2,277.68.
Microsoft Corp <MSFT.O> climbed 4 percent to $26, a day
after ceding its position to Apple <AAPL.O> as the largest
technology company by market cap. FBR Capital Markets upgraded
Microsoft, a Dow component, to "outperform," citing its
improving fundamentals and recent share underperformance.
[]
The PHLX Semiconductor index <.SOXX> gained 5.2 percent.
Technology stocks had been battered recently due to the
companies' high concentration of sales overseas.
Equity markets shrugged off a report showing the U.S.
economy grew at a slower pace than previously estimated in the
first quarter as business investment slackened.
[]
The pan-European FTSEurofirst 300 index <> closed up
2.9 percent at 1,000.46 points. The index remains down around
10 percent from a mid-April peak on worries about Europe's debt
crisis. MSCI's all-country world stock index <.MIWD00000PUS>
also rose 2.9 percent.
Banks, which have been heavily hit by concerns about
Europe's debt crisis, rose for a second straight day and were
among the top risers.
BP <BP.L> gained 5.9 percent. The company said it was
making progress with its effort to plug its rupturred Gulf of
Mexico oil well.
EURO GAINS
The euro gained 1.67 percent at $1.237 while the dollar
fell against a basket of major trading-partner currencies, with
the U.S. dollar index <.DXY> falling 1.05 percent at 86.208.
Stock market gains also supported the euro, while the yen
came under broad pressure as investors put on riskier bets
funded by cheap borrowing in the Japanese currency. The dollar
rose 1.38 percent to 91.06 yen <JPY=> in late New York trade.
"We're following the equity markets. The dollar/yen started
to gain some traction ... and that's dragging the whole risk
trade up, which is giving another boost to the euro," said Tim
O'Sullivan, chief dealer at Forex.com in Bedminster, New
Jersey.
China has been trying to diversify its currency reserves to
reduce the dollar's dominance in favor of the euro and yen to
curb risks.
On Wednesday the euro collapsed 1.5 percent against the
dollar after the Financial Times reported China's State
Administration of Foreign Exchange (SAFE) was meeting foreign
bankers because of concerns about its exposure to debt troubles
in Europe.
SAFE, the arm of the central bank, manages China's $2.4
trillion in foreign exchange reserves -- the world's largest
stockpile.
Separately, the Kuwaiti Investment Authority on Thursday
denied a local media report that it, too, was reducing its
exposure to euro zone investments. The sovereign wealth fund
stated there was no change to its long-term investment strategy
including Europe.
In response to the better risk appetite, safe-haven
benchmark 10-year U.S. Treasuries traded 1-12/32 lower, driving
the yield up to 3.35 percent <US10YT=RR>.
Euro zone government bond futures settled 39 ticks lower at
128.33, well off the session low of 128.34 <FGBLc1>.
Crude oil prices posted their biggest two-day gain since
mid-August, as a forecast for an intense Atlantic hurricane
season fueled fears of disruptions in U.S. supplies and spurred
speculative buying. Oil had also risen more than 4 percent on
Wednesday.
U.S. light sweet crude oil <CLc1> settled up $3.04, or 4.25
percent, to $74.55 per barrel, and spot gold prices <XAU=> rose
$2.20, or 0.18 percent, to $1212.10. Gold is up about 3 percent
this week.
(Additional reporting by Emelia Sithole-Matarise, Kirsten
Donovan, Brian Gorman and Neal Armstrong in London, Lucia
Mutikani in Washington, Ryan Vlastelica, Gertrude
Chavez-Dreyfuss, Wanfeng Zhou, Edward Krudy in New York)
