* Wall Street rallies on banking shares, U.S. jobs data
* Dollar index hits 6-week low as risk appetite increases
* Oil gains on rising expectations of economic recovery
* Bonds rise on lingering worries over post-payrolls data
(Updates with U.S. market activity; changes dateline, previous
LONDON)
By Herbert Lash
NEW YORK, May 8 (Reuters) - Global stocks and oil prices
rose on Friday after U.S. jobs data and long-awaited stress
tests on U.S. banks were better than expected, bolstering
rising hopes of an improving American economy.
The dollar slumped against the yen and the euro, which
surged to a one-month high above $1.35, as the labor market
news dried up safe-haven flows into the U.S. currency.
Oil retreated from session highs to below $58 a barrel, but
stayed within reach of six-month highs after data showed U.S.
employers cut 539,000 jobs in April -- below the March tally of
663,000 job losses and consensus expectations of 590,000.
Although the data showed a smaller-than-expected drop in
U.S. payrolls, the news failed to dispel the likelihood of
heavy job losses in the months ahead, leading Treasury debt
prices to rise.
The jobs report included a few discouraging signs, however,
such as a spike in the U.S. unemployment rate to 8.9 percent --
the highest since September 1983 -- helping spur a flight to
safety bid in U.S. government debt.
U.S. and European stocks rose as financials gained after
the results of U.S. bank stress tests were seen as not as bad
as expected and energy shares rose on the back of stronger
crude prices.
Several large U.S. banks announced equity and debt
offerings to raise their capital levels after the stress test
results were released late Thursday.
"They were assuming some very aggressive, sort of draconian
scenarios," said Kevin Kruszenski, head of Listed Trading at
KeyBanc Capital Markets in Cleveland. "With things appearing to
be a little on the mend maybe we might not see things get that
bad."
Shares of several major banks rose, with JPMorgan Chase Inc
<JPM.N> and Bank of America Corp <BAC.N> each up more than 3
percent.
The KBW Bank index <.BKX> jumped 5.4 percent.
Shortly after 1 p.m. EDT (1700 GMT), the Dow Jones
industrial average <> was up 132.38 points, or 1.57
percent, at 8,542.23. The Standard & Poor's 500 Index <.SPX>
was up 17.69 points, or 1.95 percent, at 925.08. The Nasdaq
Composite Index <> was up 17.38 points, or 1.01 percent,
at 1,733.62.
The Nasdaq traded near break-even despite a slide in
chipmakers and other technology bellwethers, including Apple
Inc <AAPL.O>, which dropped 1.8 percent to $126.70. Yet, the
Nasdaq remained on pace for its ninth straight weekly advance.
The dollar fell as it tends to suffer when risk aversion
ebbs and investors feel they no longer need to buy it as a safe
haven. It fell to a six-week low against a basket of major
currencies <.DXY> and was on track for its third consecutive
weekly decline.
The dollar fell against a basket of major currencies, with
the U.S. Dollar Index <.DXY> off 1.16 percent at 82.907.
"The market is positioning for recovery over the next few
months, which means the dollar will clearly see considerable
weakness as this plays out," said Melvin Harris, chief market
strategist at Advanced Currency Markets in New York.
"The jobs data was encouraging, and any trader would tell
you they've expected to see unemployment at 9 to 10 percent
before this thing was over, so that's not a shock," he said.
The euro <EUR=> gained 1.16 percent at $1.3553. Against the
yen, the dollar <JPY=> was down 0.48 percent at 98.76.
U.S. light sweet crude oil <CLc1> rose $1.24 to $57.95 per
barrel.
The benchmark 10-year U.S. Treasury note <US10YT=RR> rose
11/32 in price to yield 3.30 percent. The 2-year U.S. Treasury
note <US2YT=RR> rose 1/32 in price to yield 0.98 percent.
Copper prices fell as analysts said confidence in a global
recovery was rising, but warned that signs of genuine demand
were still scarce and supportive buying from China could
subside.
"We don't have any actual improvement in demand yet, but
clearly there is optimism right through the financial markets."
said Stephen Briggs, a metals strategist at RBS Global Banking
and Markets.
Copper, used extensively in construction, has doubled in
value since the start of the year
The MSCI index of Asian stocks outside Japan
<.MIAPJ0000PUS> rose 0.4 percent and Japan's Nikkei average
<> rose 0.5 percent to notch a new six-month close.
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