* Crude oil's pullback buoys sentiment on Wall Street
* Dollar hits six-week high versus the euro on oil slump
* U.S. debt prices slip after service sector eases fears
* Investors await Federal Reserve statement on inflation
(Recasts with U.S. markets, changes byline, dateline, previous
LONDON)
By Herbert Lash
NEW YORK, Aug 5 (Reuters) - The price of crude oil slid
further on Tuesday, driving the dollar higher and spurring
sharp gains in U.S. and European equities, especially
oil-sensitive shares and the beaten-down financial sector.
A one-two punch of rising supply from the Organization of
Petroleum Exporting Countries and declining U.S. demand pushed
oil to a fresh three-month low of $118 a barrel in New York.
The slump in crude prices helped the dollar to a six-week
high versus the euro, and euro zone government bonds rose in
thin trade ahead of a Federal Reserve policymakers' meeting.
The Fed -- the U.S. central bank -- is expected to hold
benchmark interest rates steady amid poor housing and credit
market conditions, while signaling inflation concerns even as
oil prices ease.
Facing the highest U.S. unemployment rate in four years and
the lowest existing-home sales pace since early 1998, monetary
policy-makers are expected to be more downbeat about the
economy's outlook than they were at their June meeting.
U.S. Treasury debt prices slipped after a report on the
service sector that was stronger than expected alleviated some
fears about the depth of the U.S. economy's deterioration.
Investors snapped up shares broadly, but particular
strength was evident in energy-consuming sectors, including
airlines and industrial companies. Shares of retailers, tech
and financial services companies also gained.
General Electric <GE.N> gained more than 3 percent and was
the biggest boost to the broad S&P 500. Insurer American
International Group <AIG.N> rose nearly 8 percent to lead the
Dow's climb, while on Nasdaq, the top boost was Apple Inc
<AAPL.O>, up 2.7 percent.
Peter Boockvar, equity strategist at Miller Tabak & Co in
New York, said oil's fall probably was the trigger to cause
buying in equity markets.
Before 1 p.m. (1700 GMT), the Dow Jones industrial average
<> was up 202.57 points, or 1.80 percent, at 11,486.72. The
Standard & Poor's 500 Index <.SPX> gained 22.13 points, or 1.77
percent, at 1,271.14. The Nasdaq Composite Index <> added
38.42 points, or 1.68 percent, at 2,323.98.
European stocks snapped a three-day losing streak on oil's
fall and better-than-feared results from Societe Generale
<SOGN.PA>, which lifted banks ahead of a U.S. rate decision.
Oil-sensitive airline stocks were among the biggest
gainers. British Airways <BAY.L> added 5 percent, while Air
France-KLM <AIRF.PA>, which posted better-than-expected
earnings, gained 9.4 percent.
Energy stocks were the day's big losers, with Total
<TOTF.PA> losing 1.6 percent and BP <BP.L> falling 1.2
percent.
The FTSEurofirst 300 <> index of top European shares
closed 2.6 percent higher at 1,182.31 points. The index is down
22 percent on the year, however.
"It's quite good news from Societe Generale, but overall
this market rebound will be short-lived, and I remain bearish
on stocks," said Christian Jimenez, president of Imene
Investment partners in Paris.
Oil's loss extended a slide from a July 11 all-time high of
$147.27 a barrel, prompting some to say that crude's rally has
run its course, at least for now.
"Most of the hedge funds have been taking profits," said
Angus McPhail of British-based investment firm Alliance Trust.
U.S. light sweet crude oil <CLc1> fell 84 cents to $120.57
a barrel.
Gold futures dropped further, trading below $890 an ounce,
amid widespread weakness in commodities and rising stocks.
Spot gold prices <XAU=> fell $14.15 to $879.50 an ounce.
The dollar rose against major currencies, with the U.S.
Dollar Index <.DXY> up 0.55 percent at 73.904. Against the yen,
the dollar <JPY=> was down 0.02 percent at 108.20
The euro <EUR=> fell 0.71 percent at $1.5465.
Government debt in the euro zone rose but U.S. Treasury
debt prices slipped after a stronger-than-expected report on
the service sector eased fears about a deteriorating economy.
Investors expect the Fed to leave rates unchanged, putting
the focus on an accompanying statement to see whether concerns
over downside risks to the economy will outweigh worries about
inflation.
The European Central Bank is expected to keep rates on hold
at 4.25 percent at its meeting on Thursday, having hiked them
from 4 percent last month to try to curb price pressures.
U.S. bond prices were mixed. The benchmark 10-year U.S.
Treasury note <US10YT=RR> fell 2/32 to yield 3.98 percent. The
30-year U.S. Treasury bond <US30YT=RR> was up 3/32 to yield
4.59 percent. Bond prices and yields move inversely.
Asian stocks fell to their lowest in more than a year as
resource firms were pummeled by the slump in oil and metals
prices to multi-month lows.
The MSCI index of Asian stocks outside Japan
<.MIAPJ0000PUS> at one point fell to its lowest since March
2007, before paring some losses.
Tokyo's Nikkei average <> swung between gains and
losses to end down 0.1 percent.
(Reporting by Vivianne Rodrigues, Ellis Mnyandu, John Parry
and Frank Tang in New York; Kirsten Donovan and Alex Lawler in
London and Blaise Robinson in Paris; Writing by Herbert Lash;
Editing by James Dalgleish)
