(Recasts, adds analysts comments, updates prices)
By Pedro Nicolaci da Costa
NEW YORK, March 31 (Reuters) - U.S. stocks gained on Monday
as a regulatory overhaul in Washington propped up financial
shares, but shares in Europe closed lower as renewed concern
about the credit crunch hit bank stocks.
The persistent concerns about the global banking system
also drove up prices of U.S. government bonds.
And in foreign exchange markets, the euro came close to a
record high against the dollar as higher-than-forecast
euro-zone price data reinforced expectations that the European
Central Bank will not start cutting interest rates soon.
The fall in stocks in Europe marked the the worst quarterly
performance in over five years, with the pan-European
FTSEurofirst 300 index of top European shares now down for five
straight months, its worst run since a six-month stretch of
declines from April to September 2002.
A reversal in the record-prone commodities sector
continued, meanwhile, with oil prices falling over 3 percent to
$102 a barrel. The Reuters/CRB commodities index was down 1.8
percent.
The Dow Jones industrial average rose 0.5 percent as
investors exhibited cautious optimism regarding a White House
plan to boost the Federal Reserve's role in overseeing
financial institutions.
But there was broader skepticism that this and other
measures to unclog the banking system, such as massive
liquidity injections from global central banks, would do the
trick.
"The Fed measures are lending some stabilization to the
market, but it doesn't seem like the financing aspect for banks
is getting any better," said Sean Murphy, bond trader with RBC
Capital Markets in New York.
The Dow Jones industrial average <> was up 62.04
points, or 0.51 percent, at 12,278.44. The Standard & Poor's
500 Index <.SPX> was up 8.18 points, or 0.62 percent, at
1,323.40. The Nasdaq Composite Index <> was up 14.81
points, or 0.65 percent, at 2,275.99.
JPMorgan Chase & Co <JPM.N> shares gained 2.7 percent to
$43.84, leading the Dow industrials and among the S&P's major
gainers. An S&P index of financial shares <.GSPF> shot up 1.6
percent.
Equities found some comfort in data from Chicago purchasing
managers showing that the Midwest factory sector, while still
contracting, was do so at less severe pace.
In Europe, the FTSEurofirst 300 index closed down 0.26
percent at 1,262.14 points.
Banks were the worst performing sector in Europe after a
Merrill Lynch research note said Switzerland's UBS<UBSN.VX>,
one of the biggest casualties of the credit crunch among
Europe's large banks, may see further write-downs.
"You can break the market down into two components. You've
got the credit crunch affecting financials and then you've got
the economic slowdown," said Kevin Lilley, a portfolio manager
at Royal London Asset Management who helps manage 1.1 billion
euros ($1.74 billion).
"We are now five years into this economic cycle and I think
people's estimates are way, way too high," he said, adding: "It
is difficult to see the market making major headway when there
are going to be major downgrades coming through."
UBS shares fell as much as 4.8 percent after Merrill Lynch
said it expected the bank to make a further $11 billion of
first-quarter write-downs, resulting in a loss of 8.2 billion
Swiss francs ($8.22 billion) in the first three months.
UBS ended down just 0.4 percent on Monday but has fallen
nearly 50 percent this quarter, bearing the brunt of investor
panic over write-downs.
The barrage of bad news from the banking sector was
unrelenting. Over the weekend, Lehman Brothers <LEH.N> became
embroiled in what it says was a fraudulent scam in Japan that
the firm claims cost it $352 million.
The dispute arose as Lehman has been beset by market rumors
that it could see a run on the bank similar to the one that
dragged down rival Bear Stearns <BSC.N>. Lehman has said it has
more than enough capital to do business in the current
environment.
In the U.S. Treasuries market, the second-guessing on the
credit system kept the bond market well bid, with benchmark
10-year notes <US10YT=RR> up 7/32 and offering a yield of 3.41
percent, down three basis points.
In the oil markets, crude was down over $4 a barrel as
traders dumped their positions ahead of quarter-end.
The euro again flirted with record highs against the dollar
on the expectations that the ECB would not start cutting
interest rates soon.
The outlook for euro-zone rates contrasts with the United
States where the Federal Reserve is widely expected to continue
to cut the benchmark rate in a bid to stoke economic growth.
Higher rates tend to lure investors and increase demand for a
currency.
The euro rose as high $1.5895 -- just short of record highs
set two weeks ago <EUR=> -- before retreating to around $1.5802
midway through the New York session. It was a volatile session
in both London and New York, with the single euro zone currency
swinging between gains, losses and trading little changed.
(Reporting by Pedro Nicolaci da Costa and John Parry; Editing
by Leslie Adler)
