(Refiling to correct headline to reflect that dollar up, not
down)
(Recasts with U.S. markets, adds byline; changes dateline;
previous LONDON)
* News of deals involving CNET, Yahoo bring stock optimism
* Weak U.S. output, manufacturing reports boost bonds
* Dollar rises, oil falls after strong euro zone growth
By Herbert Lash
NEW YORK, May 15 (Reuters) - U.S. stocks rose slightly on
Thursday as optimism about potential deals overshadowed weak
economic data, while in Europe stocks gained on strong euro
zone growth despite a warning it would be short-lived.
Oil reversed gains as a sharp sell-off in natural gas and
technical issues pushing crude lower. Earlier, a stronger euro
follower robust European economic growth data helped oil prices
rise.
Dollar losses were capped as European Central Bank
President Jean-Claude Trichet warned that euro zone growth may
not be so flattering in the months ahead.
The yen rose across the board as investors reduced demand
for riskier assets such as stocks after a series of weak U.S.
economic data added to anxiety over the U.S. economy.
U.S. Treasury debt prices climbed after signs of softness
in manufacturing and America's labor market hinted at a
still-weakening U.S. economy. However, investors stuck to a
newfound conviction that stubborn inflation pressures will
force the Federal Reserve to start raising interest rates by
the end of the year.
That stands in contrast to Europe, where analysts expect
the ECB will have no option but to cut rates in the second half
of the year as the euro zone economy wilts.
Fed Chairman Ben Bernanke reminded investors of lingering
weakness in the banking sector, calling for some banks to raise
more capital. Bernanke said financial market turmoil
underscores the need for "generous" capital cushions.
Investors took heart in deal news. CBS Corp <CBS.N> said it
would buy Web media company CNET Networks <CNET.O>, and
billionaire investor Carl Icahn said he will run a dissident
board slate for Yahoo Inc <YHOO.O> in a bid to force the
Internet company to sell itself to Microsoft Corp <MSFT.O>.
CNET surged 43 percent to $11.40, and CBS fell 2.7 percent
to $24.16. Yahoo was down 0.6 percent at $26.97 and Microsoft
rose 1.3 percent to $30.30.
"Generally, things are better than the bad we expected,"
said Linda Duessel, market strategist at money manager
Federated Investors in Pittsburgh.
"We've had a big storm and now it's only raining slightly,
but Bernanke is saying that it's not plain sailing for the
financial sector yet. The fact we've started to see M&A
(mergers and acquisitions) beginning to pick up again a little
is a start."
At midday, the Dow Jones industrial average <> was up
35.98 points, or 0.28 percent, at 12,934.36. The Standard &
Poor's 500 Index <.SPX> was up 6.29 points, or 0.45 percent, at
1,414.95. The Nasdaq Composite Index <> was up 22.10
points, or 0.89 percent, at 2,518.80.
In Europe, shares ended higher as gains in drugs and
commodity stocks offset the impact of banks, which weakened
after Barclays <BARC.L> unveiled write-downs and left the door
open for a rights issue.
The pan-European FTSEurofirst 300 <> index ended 0.4
percent higher at 1,359.86 points, its third day of modest
gains this week. The index has gained 1.7 percent in May, after
a 6 percent rise in April.
Roche Holding <ROG.VX> and Novartis <NOVN.VX> gained 2
percent or more on hopes for key cancer drug trials due to be
presented at the end of the month. Much of the information will
be available beginning on Friday.
BT Group jumped 5.4 percent after posting strong
fourth-quarter results, while Deutsche Postbank <DPBGn.DE> rose
3 percent to top German gainers on talk of takeover interest
from insurer Allianz <ALVG.DE>. Allianz and Postbank's owner,
Deutsche Post <DPWGn.DE>, both declined to comment.
Yields on two-year euro zone government bonds traded at
their highest level since late 2007, after
stronger-than-expected German economic growth.
Economic growth in the euro zone rose 0.7 percent in the
first quarter from the last quarter of 2007, led by a big jump
in Germany, beating analysts' expectations.
U.S. Treasury debt prices were higher.
The benchmark 10-year U.S. Treasury note <US10YT=RR> rose
11/32 to yield 3.88 percent. The two-year U.S. Treasury note
<US2YT=RR> added 3/32 to yield 2.48 percent. The 30-year U.S.
Treasury bond <US30YT=RR> gained 7/32 to yield 4.60 percent.
The dollar rose against major currencies, with the U.S.
Dollar Index <.DXY> up 0.16 percent at 73.398, but it fell
against the yen as U.S. economic data weighed.
The euro <EUR=> fell 0.21 percent to $1.5442. Against the
yen, the dollar <JPY=> fell 0.19 percent to 104.84.
Spot gold prices <XAU=> rose $16.50, or 1.91 percent, to
$880.15.
Oil fell on a natural gas sell-off and volatility
associated with the expiration of June contract options.
Crude for June delivery <CLM8> was off $2 at $122.22 per
barrel.
(Additional reporting by Kristina Cooke, Lucia Mutikani and
John Parry in New York and Jane Merriman, Lewa Pardomuan and
Sitaraman Shankar in London; Editing by Jonathan Oatis)
