(Recasts with U.S. markets, adds byline; changes dateline;
previous LONDON)
By Herbert Lash
NEW YORK, April 18 (Reuters) - U.S. and European stocks
surged and the dollar strengthened on Friday on hopes quarterly
results at Citigroup mark a turning point in a global credit
crunch that has battered markets for months.
The dollar touched a seven-week high against the yen and
pulled further away from a record low versus the euro hit
earlier this week after Citigroup surprised investors with
steps that showed it would get past its credit-related losses.
The easing of investor worries drove European stocks to a
10-day high and lifted the Dow Jones industrial average to a
three-month high. Bond yields rose as financial markets trimmed
their expectation of an end-April Federal Reserve rate cut.
U.S. crude oil futures bounced to a record high above $116
a barrel as buyers stepped in after crude futures fell $2 and
came under pressure partly from a rising dollar and amid
worries about a possible slowdown in energy-hungry China.
Gold prices slipped more than 3 percent.
In the United States, stocks also were lifted by
higher-than-expected results from Google Inc <GOOG.O>, which
sparked a rally in Internet stocks, while manufacturers
Honeywell International <HON.N> and Caterpillar Inc <CAT.N>
both reported stronger-than-forecast earnings on robust
international sales.
The corporate results helped improve the first-quarter
earnings picture after disappointments last week from Alcoa Inc
<AA.N> and General Electric Co <GE.N>.
"You can say investors are looking at the market with
'googly' eyes today," said John Forelli, senior vice president,
Independence Investment LLC. "A day like today confirms that
the GE announcement of last week is not systemic among all U.S.
companies."
The Dow Jones industrial average <> was up 254.60
points, or 2.02 percent, at 12,875.09. The Standard & Poor's
500 Index <.SPX> was up 28.13 points, or 2.06 percent, at
1,393.69. The Nasdaq Composite Index <> was up 66.98
points, or 2.86 percent, at 2,408.81.
Citigroup's <C.N> $5.1 billion loss set the day's tone as
investors took the view that the largest U.S. bank is moving to
get past credit woes and is working to restore luster to a
stock that has lost about 50 percent over the last year.
The loss, which reflected more than $16 billion of
write-downs and credit-related costs and was larger than
expected, further weighing on the safe-haven government debt.
The bank also said it would cut another 9,000 jobs.
"It's a cathartic quarter," said Arthur Hogan, chief market
analyst at Jefferies & Co in Boston.
Citigroup's shares rose 7.5 percent.
European stocks rose sharply to their highest close in 10
days, driven by banking shares, which jumped after Citigroup's
results and a potential rights offering at Royal Bank of
Scotland raised hopes the worst of the credit crisis was over.
The FTSEurofirst 300 index <> of top European shares
gained 2.4 percent to 1,325.90 points, its highest close since
April 7. The index is up 5 percent so far in April, putting it
on track for its best month since October 2003.
Banks <.SX7P> were the best performing sector, rising 3.7
percent. Shares of RBS <RBS.L>, which have dropped about 18
percent this year, rose 4.9 percent. UBS <UBSN.VX> added 5.4
percent and Societe Generale <SOGN.PA> 5.9 percent.
Earlier in Europe, Japan's Nikkei average <> rose for
the fourth day running, adding 0.6 percent, as Asian shares
found support from encouraging results at Merrill Lynch, whose
$6.5 billion in write-downs on Thursday were in line with
analysts' expectations.
The MSCI's measure of other Asia Pacific stocks outside
Japan <.MIAPJ0000PUS> fell 1 percent.
European Central Bank Governing Council member Klaus
Liebscher underpinned waning rate cut expectations, saying in
an interview with Reuters in Vienna there was no room to lower
borrowing costs and interest rate rises cannot be ruled out.
Liebscher's comments followed data this week showing record
high euro zone inflation and came a day after two top Federal
Reserve officials warned against the risks of inflation. Those
remarks were seen as the existence of a hard wing of U.S.
policy-makers who oppose further Fed cuts.
Markets cut their expectations of a cut to the benchmark
federal funds rate, reducing chances of a one-quarter pecentage
point cut to 88 percent from a fully priced in view in recent
weeks. Chances of a one-half point cut are now zero.
Euro zone government bond yields jumped and the curve
flattened to levels last seen late last year, which the U.S.
two-year Treasury note's <US2YT=RR> yield rose to 2.25 percent,
matching the federal funds target rate as bond traders pared
back bets for Federal Reserve interest rate cuts.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was
down 31/32, with the yield at 3.8442 percent.
The dollar was up against a basket of major
trading-partner currencies, with the U.S. Dollar Index <.DXY>
up 0.93 percent to 72.254. The euro <EUR=> was down 0.94
percent to $1.5745, and against the yen, the dollar <JPY=> was
up 1.88 percent to 104.46.
U.S. light sweet crude oil <CLc1> rose $1.04, or 0.91
percent, to $115.90 per barrel, and spot gold prices <XAU=>
fell $25.70, or 2.74 percent, to $913.20.
(Reporting by Jennifer Coogan, John Parry, Gertrude
Chavez-Dreyfuss in New York and Sitaraman Shankar, Atul
Prakash, Ian Chua and Margaret Orgill in London)
(Editing by Walker Simon)
