* Crude oil's pullback buoys sentiment on Wall Street
* Stocks rally after Fed keeps rates steady at 2 percent
* Dollar hits six-week high versus the euro on oil slump
* U.S. debt prices slip after service sector eases fears
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, Aug 5 (Reuters) - U.S. and European stocks rose
more than 2 percent on Tuesday, spurred by tumbling oil prices
and a Federal Reserve decision to keep interest rates steady, a
move that trimmed the dollar's gains against the euro and yen.
U.S. Treasury debt prices slipped after the Fed kept
benchmark interest rates unchanged at 2 percent, as expected,
as it expressed concerns on economic growth and inflation.
Stocks added to gains after the decision, with the three
major U.S. indexes rising nearly 3 percent. extending an
earlier rally sparked by a tumble in the price of oil.
Oil fell below $120 to a fresh three-month low as Tropical
Storm Edouard hit the Texas coast without causing any major
disruption to U.S. energy operations.
A one-two punch of rising supply from the Organization of
Petroleum Exporting Countries and declining U.S. demand pushed
down oil.
The Reuters-Jefferies CRB <.CRB> fell below 400 points for
the first time since May as tumbling oil and other raw
materials weighed on the commodities index.
Crude's slump initially drove the dollar to a six-week high
versus the euro, and euro zone government bonds rose in thin
trade ahead of the Fed's meeting.
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.
"The factor in the market is that oil prices went down to
$118 a barrel. Oil has been overwhelmingly the major single
factor driving markets since late June. I think that is a
completely sufficient explanation," said Brian Gendreau,
investment strategist at ING Investment Management in New
York.
General Electric <GE.N> gained 3.8 percent and was the
biggest boost to the broad S&P 500. Insurer American
International Group <AIG.N> rose nearly 12 percent to lead the
Dow's climb, while on Nasdaq, the top boost was Apple Inc
<AAPL.O>, up 4.8 percent.
The Dow Jones industrial average <> rose 331.62 points,
or 2.94 percent, at 11,615.77. The Standard & Poor's 500 Index
<.SPX> added 35.78 points, or 2.86 percent, at 1,284.79. The
Nasdaq Composite Index <> gained 64.27 points, or 2.81
percent, at 2,349.83.
"The market seems to be reacting somewhat favorably to the
idea the Fed will not raise interest rates any time soon. It
appears that the Fed has actually taken a little more of a
dovish stance, speaking more about the downside risks to
growth," said Richard Sparks, senior equities analyst,
Schaeffer's Investment Research.
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 the Fed 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> down 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. crude <CLc1> settled down $2.24 to $119.17 a barrel
after tumbling to $118.00, the lowest price since May 5. London
Brent crude <LCOc1> lost $2.98 to settle at $117.70.
Gold ended 2 percent lower. The December gold contract
<GCZ8> settled down $21.80 at $886.10 an ounce in New York.
The dollar rose against major currencies, with the U.S.
Dollar Index <.DXY> up 0.57 percent at 73.919. Against the yen,
the dollar <JPY=> was unchanged at 108.22.
The euro <EUR=> fell 0.73 percent at $1.5461.
U.S. Treasury debt prices fell. The benchmark 10-year U.S.
Treasury note <US10YT=RR> fell 15/32 to yield at 4.03 percent.
The 30-year U.S. Treasury bond <US30YT=RR> fell 28/32 to yield
4.65 percent.
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.
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> 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)
