(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, May 6 (Reuters) - Oil shot to a record over $122
a barrel on Tuesday, and U.S. stocks rose on energy-related
shares and a gain in Microsoft over speculation it would resume
takeover talks with Yahoo that fell apart.
Crude oil extended a rally that has seen prices double over
the past year as Goldman Sachs forecast oil could hit $200 as
part of a "super-spike" driven by a lack of adequate supply.
The price of U.S. 10-year Treasury notes dipped, erasing
earlier gains, as reassuring comments from Fannie Mae <FNM.N>,
the largest provider of U.S. home financing, helped send stocks
higher and dimmed bonds' safe-haven appeal.
Fannie Mae executives were cautiously optimistic that the
worst of a credit crisis that erupted from a housing market
slump may have passed. That triggered a big rally in Fannie Mae
shares and supported a wider advance in U.S. stocks.
The dollar extended declines against the euro and other
major currencies for a second day, and U.S. gold futures ended
slightly higher after initially scaling a one-week high.
U.S. stocks spent much of the morning underwater after
Fannie Mae reported a $2.5 billion loss -- its third quarterly
loss in a row. That renewed credit jitters and raised the
safe-haven appeal of government debt.
But Fannie Mae 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 Mae shares surged 8.6 percent.
The company earlier cut its dividend and set plans to raise
$6 billion in fresh funds to weather the U.S. housing market
slump.
The Nasdaq Composite Index briefly rose 1 percent in late
trading as investors anticipated that Yahoo Inc may give in to
pressure from its largest shareholders to reconsider Microsoft
Corp's $47.5 billion offer.
Investors also noted conciliatory comments from Yahoo's
chief executive, Jerry Yang.
Yahoo shares rose 4.4 percent, partially recovering from a
15 percent slide on Monday after Microsoft withdrew its bid 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 <> rose 51.29 points,
or 0.4 percent, to close at 13,020.83. The Standard & Poor's
500 Index <.SPX> added 10.77 points, or 0.77 percent, to finish
at 1,418.26. The Nasdaq Composite Index <> gained 19.19
points, or 0.78 percent, to end at 2,483.31.
Banks and insurers put European shares under pressure after
UBS <UBSN.VX> sought to purge the ill effects 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."
Oil prices jumped on supply concerns spurred by rising
tensions with Iran and disruptions in Nigeria.
U.S. crude <CLc1> settled up $1.87 at $121.84 a barrel
after touching a record $122.73 earlier. London Brent crude
<LCOc1> gained $2.32 to $120.31 a barrel, after hitting a
record $120.99.
The dollar fell against major trading-partner currencies,
with the U.S. Dollar Index <.DXY> down 0.25 percent at 72.999.
The euro <EUR=> rose 0.23 percent to $1.5526. Against the
yen, the dollar <JPY=> fell 0.16 percent to 104.70.
U.S. gold futures ended slightly higher after initially
scaling a one-week high. Bullion could run into heavy
chart-based resistance in the near term, analysts said.
The June contract <GCM8> for gold in New York settled up
$3.60 at $877.70 an ounce.
U.S. Treasury debt prices were mixed. The benchmark 10-year
U.S. Treasury note <US10YT=RR> fell 8/32 to yield 3.90 percent.
The two-year U.S. Treasury note <US2YT=RR> rose 2/32 to yield
2.38 percent. The 30-year U.S. Treasury bond <US30YT=RR> fell
16/32 to yield 4.64 percent.
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)
