* Global shares rise on banking sector outlook
* Euro slides from 7-week high versus dollar
* Oil bounces above $73 on expected inventory drop
* Bonds fall as safe-haven bid eases on stock rally
(Adds close of European markets)
By Herbert Lash
NEW YORK, July 7 (Reuters) - Global stocks rallied on
Wednesday, spurred by a brighter outlook for banks on both
sides of the Atlantic, while oil prices snapped a six-day slide
on expectations U.S. crude inventories will decline.
A bullish earnings forecast by State Street Corp <STT.N>,
the world's second-largest custodian bank, lifted U.S. and
European banking shares. Higher crude prices boosted stocks in
the energy sector. For details see: []
Shares of State Street jumped almost 10 percent after it
forecast second-quarter operating earnings that were sharply
above analysts' expectations. Banks rebounded from recent heavy
losses, driving the KBW bank index <.BKX> up 2.5 percent.
"Having a bank give this kind of pre-announcement is very
encouraging," said Jack Ablin, chief investment officer at
Harris Private Bank in Chicago. "It's giving a more positive
tone to the market in general."
MSCI's all-country world equity index <.MIWD00000PUS> rose
0.8 percent, but its emerging market index <.MSCIEF> remained
in the red, down 0.2 percent.
The Dow Jones industrial average <> was up 142.74
points, or 1.46 percent, at 9,886.36. The Standard & Poor's 500
Index <.SPX> was up 15.44 points, or 1.50 percent, at 1,043.50.
The Nasdaq Composite Index <> was up 27.61 points, or 1.32
percent, at 2,121.49.
European shares reversed early losses in response to the
State Street outlook and gained on optimism stress tests
planned for banks in the euro zone and other countries might
not be as bad as initially feared. []
The FTSEurofirst 300 <> index of top European shares
rose 1.5 percent to close at 1,006.01 points, capping a 4
percent rise over the past two sessions.
Spanish banks featured among top gainers, with heavyweights
Banco Santander <SAN.MC> and BBVA <BBVA.MC> up 6.5 percent and
6.3 percent, respectively.
"State Street's statement makes people think banking
earnings will be good for the quarter," said Joshua Raymond,
market strategist at City Index. "And there's hope of
transparency on the stress tests."
The Committee of European Bank Supervisors was due to
outline its methodology for a test that simulates the impact of
a severe economic shock on about 100 banks and mimics last
year's U.S. tests, sources close to the process said.
[]
Oil rebounded, lifted by hopes of a strong earnings season
that were stirred by State Street and on expectations data will
show a drop in U.S. crude inventories. []
U.S. crude <CLc1> was up $1.46 to $73.44 a barrel, having
fallen to $71.44 earlier.
ICE Brent crude futures <LCOc1> were up $1.50 at $72.95.
U.S. Treasuries slid and Bund futures shed earlier gains to
settle lower after the State Street outlook improved risk
appetite and curbed demand for safe-haven government debt.
Bund futures <FGBLc1> fell to a session low of 129.12 as
equities turned higher, but trading volumes were thin ahead of
the European Central Bank's monthly meeting on Thursday.
Treasury traders booked profits on recent safe-haven buying
driven by worries the U.S. economic recovery has hit a wall.
[]
The modest pullback in bonds did not dispel chatter over a
U.S. double-dip recession. Recent disappointing data on the
labor and housing markets have emboldened bond bulls who bet
the Federal Reserve will keep short-term interest rates near
zero well into the second half of 2011, analysts said.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was
down 6/32 in price to yield 2.96 percent.
"You are seeing a bit of an unwind of the moves into the
back end of the curve. It's just profit-taking," said Jessica
Hoversen, an analyst with MF Global Research in Chicago.
The euro fell from seven-week highs against the dollar on
lingering concerns about the global economy as investors
scrutinized the plans for European stress tests.
[]
The euro <EUR=> was down 0.25 percent at $1.2591, against
the yen, the dollar <JPY=> was down 0.40 percent at 87.20.
The U.S. Dollar Index <.DXY> was break-even.
"The euro remains vulnerable to another downturn as
investors begin to look to the 16-member bloc's growth
prospects amid a back drop of strict budget cuts and the
potential for another downturn in the global economy," said
Omer Esiner, a chief market analyst at Commonwealth Foreign
Exchange in Washington.
Spot gold prices <XAU=> increased $2.65 to $1,194.90 an
ounce.
Copper fell more than 1 percent, retreating after Tuesday's
rally as weaker data knocked the demand outlook and a rising
dollar deterred non-U.S. investors. []
Asian stocks slipped as investors worried that global
growth was faltering, with the MSCI index of Asia Pacific
shares outside Japan <.MIAPJ0000PUS> shedding almost 1 percent.
Japan's Nikkei average <> ended down 0.6 percent.
(To read Reuters Global Investing Blog click on
http://blogs.reuters.com/globalinvesting; for the MacroScope
Blog click on http://blogs.reuters.com/macroscope; for Hedge
Fund Blog click on http://blogs.reuters.com/hedgehub)
(Reporting by Edward Krudy, Vivianne Rodrigues, Richard Leong
in New York; Ian Chua, Ikuko Kurahone, Brian Gorman and Rebekah
Curtis in London; writing by Herbert Lash; editing by Andrew
Hay)
