(Recasts with U.S. markets, adds byline; dateline previous
LONDON)
By Herbert Lash
NEW YORK, May 6 (Reuters) - Oil spurted to a record $122 a
barrel on Tuesday, while U.S. stocks edged higher after home
lender Fannie Mae eased jitters over a big loss and investors
latched onto hopes that Yahoo could resume takeover talks with
Microsoft.
The dollar extended declines against the euro and other
major currencies for a second day as currency and fixed-income
investors soured on quarterly results at Fannie Mae, the
largest provider of U.S. home financing, which came in weaker
than expected.
U.S. government debt prices rose as Fannie Mae's $2.5
billion loss -- its third quarterly loss in a row -- renewed
credit jitters and raised the safe-haven appeal of U.S.
Treasury bonds.
But Fannie Mae <FNM.N> shares shed early losses to turn
higher as the tone of company executives on a conference call
reassured investors, analysts said. Fannie Mae said it is
improving its mortgage portfolio and shareholder value with the
housing market in the middle of a down cycle.
"Whatever comments they're making are making people more
comfortable," said Bobby Harrington, head of block trading at
UBS.
Fannie earlier cut its dividend and set plans to raise $6
billion in fresh funds to weather the U.S. housing market
slump, which initially drove its shares and the broader U.S.
stock market lower.
The technology-rich Nasdaq Composite Index rose on hopes
that a Yahoo deal could be reached despite comments from a
Microsoft executive who cast doubt about any return to a
takeover transaction.
Yahoo Chief Executive Jerry Yang told Reuters on Monday
that he had "mixed feelings" about events over the weekend,
when talks broke down, and he said he was still open to talis.
Yahoo shares rose 4.4 percent, partially recovering from a
15 percent slide on Monday after Microsoft withdrew its $47.5
billion bid for the Internet company in an effort to create a
stronger competitor to Google Inc <GOOG.O>.
Microsoft rose 1.6 percent and Google was down 0.8
percent.
The Dow Jones industrial average <> was down 5.30
points, or 0.04 percent, at 12,964.24. The Standard & Poor's
500 Index <.SPX> was up 4.26 points, or 0.30 percent, at
1,411.75. The Nasdaq Composite Index <> was up 9.04
points, or 0.37 percent, at 2,473.16.
Banks and insurers put European shares under pressure after
UBS <UBSN.VX> sought to purge the impact of the credit crisis
and Swiss Re <RUKN.VX> announced another round of write-downs.
UBS shares fell 4.5 percent and were the biggest drag on
the broader European equity market.
The FTSEurofirst 300 index <> of top European shares
closed down 0.5 percent at 1,351.25 points, having recovered
from a decline of as much as 1.1 percent as stocks on Wall
Street pared losses. The index has rallied about 13 percent
since hitting near-three year lows in mid-March.
"A bear market rally usually lasts 35 days and (rises) an
average of 12 to 13 percent, that is exactly what we've seen on
the S&P, so this would be it," said Philippe Gijsels, a senior
equities strategist at Fortis Bank in Brussels.
"If this is a bear market rally, it should stop around
now."
U.S. Treasury prices rose as Fannie Mae's hefty quarterly
loss reminded investors that problems in America's housing
market, a major drag on the U.S. economy, may not yet have
completely worked their way through the system.
"All this begins and ends with housing. Unfortunately,
there is no end in sight," said Richard Iley, senior economist
at BNP Paribas in New York. Iley forecast another 20 percent
drop in home prices from current levels.
The benchmark 10-year U.S. Treasury note <US10YT=RR> rose
4/32 to yield 3.86 percent. The 2-year U.S. Treasury note
<US2YT=RR> gained 3/32 to yield 2.37 percent. The 30-year U.S.
Treasury bond <US30YT=RR> added 2/32 to yield 4.6 percent.
The dollar fell against major trading-partner currencies,
with the U.S. Dollar Index <.DXY> off 0.39 percent at 72.899.
The euro <EUR=> rose 0.38 percent to $1.555. Against the
yen, the dollar <JPY=> fell 0.30 percent to 104.56.
U.S. crude oil futures extended a rally above $122 a barrel
on a weak dollar, supply concerns and a report by Goldman Sachs
that predicted crude prices would reach $150 to $200. Refined
product futures also set records.
June crude <CLM8> rose 1.88 percent to $122.22 a barrel
after touching $122.49 as prices easily eclipsed Monday's
$120.36 record peak.
In London, June Brent crude <LCOM8> rose 2.25 percent to
$120.65 a barrel after touching $120.96.
Gold rose more than 1 percent on bargain hunting and
record-high oil that lifted bullion's appeal as an inflation
hedge. But investors remained cautious after a recent sell-off
to four-month lows.
The spot gold price <XAU=> rose $7.55, or 0.86 percent, to
$880.60 after midday.
Stock markets in Hong Kong <>, China <> and
Singapore <.FTSTI> were little changed. The main index in
Australia <>, where the central bank kept interest rates
steady at a 12-year high and pointed to a slowdown in demand,
retreated 0.5 percent.
Japan's exchange was closed for a holiday.
(Additonal reporting by Caroline Valetkevitch, Richard Leong
and Nick Olivari in New York, and Jane Merriman, Amanda Cooper
and Atul Prakash in London; Editing by Jonathan Oatis)
(Reporting by Herbert Lash)
