* European stocks rise on bank results, U.S. on oil slide
* Dollar hits seven-month high vs yen on recovery hopes
* Oil drops towards $117 after U.S. inventory data
(Recasts with U.S. markets, changes byline, dateline; previous
LONDON)
By Herbert Lash
NEW YORK, Aug 6 (Reuters) - Oil slid again on Wednesday to
almost $117 a barrel, helping U.S. stocks rebound or pare
losses and lifting the dollar to a seven-month high against the
yen, while European equities rose on a rally in bank stocks.
Demand for the euro fell ahead of a European Central Bank
meeting on Thursday, when policy-makers are widely seen holding
the ECB's key lending rate at 4.25 percent.
Against a backdrop of data painting a bleak economic
picture and oil almost $30 below its all-time high set in July,
investors have sharply trimmed bets of the ECB raising interest
rates any time soon in the euro zone.
The Fed on Tuesday kept its benchmark federal funds rate
steady at 2 percent and signaled in a statement that it is in
no rush to push borrowing costs higher.
The statement helped U.S. equity markets rally almost 3
percent on Tuesday and bolstered the dollar as steady rates
should bolster the flagging U.S. economy.
"The U.S. economy is showing some signs of recovery and oil
prices falling do help," said Meg Browne, a currency strategist
at Brown Brothers Harriman in New York. "Going into the end of
the year and into 2009, the tip will be moving in favor to the
U.S. dollar."
The technology-rich Nasdaq reversed losses and moved into
positive territory while the Dow and S&P 500 pared losses to
trade little changed as the price of oil fell.
The drop in crude prices helped offset a slide in financial
shares after mortgage finance company Freddie Mac <FRE.N>
posted its fourth straight quarterly loss and equity investors
braced for more fallout from the prolonged U.S. housing slump.
Freddie Mac said it would set aside twice as much money for
bad loans and slash its dividend at least 80 percent.
Freddie Mac's shares were down almost 12 percent, while
those of bigger rival Fannie Mae <FNM.N> declined nearly 8
percent after both falling lower in the session.
The two companies, which hold or guarantee nearly half the
$12 trillion in outstanding U.S. mortgages, have been pummeled
by the housing downturn. The S&P 500 financial index <.GSPF>
was off 0.5 percent, after falling 2 percent.
"Freddie Mac was not a vitamin pill this morning. It
clearly wasn't good news," said Stephen Massocca, co-chief
executive at San Francisco-based investment bank Pacific Growth
Equities.
"When you lower the dividend, people get out of the stock
for that reason."
Before 1 p.m., the Dow Jones industrial average <> was
down 1.14 points, or 0.01 percent, at 11,614.63. The Standard &
Poor's 500 Index <.SPX> was down 1.53 points, or 0.12 percent,
at 1,283.35. The Nasdaq Composite Index <> was up 12.72
points, or 0.54 percent, at 2,362.55.
European stocks rose in relatively calm trade with banks
gaining ground after BNP Paribas <BNPP.PA> delivered earnings
that were better than expected and commodity shares rallied on
Xstrata's <XTA.L> $10 billion bid for Lonmin <LMI.L>.
The FTSEurofirst 300 <> index of top European shares
closed 0.9 percent higher at 1192.99 points, tapping a 7-week
closing high.
Banks were among the biggest risers. BNP Paribas gained 5.2
percent, Societe Generale <SOGN.PA> added 3 percent and UBS
<UBSN.VX> rose 3.7 percent. But Commerzbank <CBKG.DE> fell 1.5
percent as investors expressed disappointment over its outlook
despite solid second-quarter numbers.
The DJStoxx European Banks index <.SX7P> rose 1.2 percent.
"The results from BNP and Commerzbank were OK, which
helped, and the Federal Reserve also reassured at the margins,"
said Bernard McAlinden, market strategist at NCB Stockbrokers
in Dublin.
Oil slid to a another three-month low after government data
showed bigger-than-expected increases last week in crude and
distillate stocks in the United States, the world's top
consumer of fossil fuels.
U.S. light sweet crude oil <CLc1> fell $1.20 to $117.97 a
barrel.
The U.S. Energy Information Administration said crude oil
stocks rose by 1.7 million barrels last week, against
expectations of an increase of 300,000 barrels.
Gasoline inventories fell by 4.4 million barrels compared
with forecasts of a 1.2 million barrels drop, while stocks of
distillate fuels, which include heating oil and diesel, rose by
2.8 million barrels, 700,000 barrels more than expected.
"It's mixed data -- it's bearish for distillates, bearish
for crude oil and bullish for gasoline. One key question is how
much we're going to make out of the draw in gasoline when we
only have one month left in the driving season," said Tim
Evans, energy analyst at Citi Futures Perspective.
Gold rose 1 percent in Europe as investors bought the metal
after a three-day fall in prices to buy below the key $900 an
ounce level. Investors interpreted the Fed's statement on
Tuesday as indicating it is in no hurry to hike rates.
Spot gold prices <XAU=> rose $2.30 to $875.55 an ounce.
The dollar rose against major currencies, with the U.S.
Dollar Index <.DXY> up 0.36 percent at 74.216. Against the yen,
the dollar <JPY=> rose 1.18 percent at 109.57. from a previous
The euro <EUR=> fell 0.23 percent at $1.5422.
U.S. long-dated Treasury debt prices extended earlier
losses as investors stepped up unwinding of hedges on mortgage
securities after Freddie Mac unveiled steps to boost capital.
Investors often buy and sell Treasuries and interest rate
swaps to hedge against changing values on mortgage bonds.
Freddie Mac plans to keep its mortgage portfolio "roughly
flat" until market conditions improve, said the company's chief
financial officer Buddy Piszel.
Concerns about the lack of buying support from Freddie Mac
led traders to unload mortgage-backed securities and related
Treasury hedges, analysts said.
U.S. Treasury debt prices were lower.
The benchmark 10-year U.S. Treasury note <US10YT=RR> fell
15/32 to yield 4.0816 percent. The 30-year U.S. Treasury bond
<US30YT=RR> fell 28/32, with the yield at 4.7007 percent.
Asian shares rebounded from a three-session losing streak.
The MSCI index of Asian stocks outside Japan <.MIAPJ0000PUS>
gained 1.7 percent after hitting its lowest since March 2007 on
Tuesday. Tokyo's Nikkei benchmark <> rose 2.6 percent.
(Reporting by Steven C. Johnson, Vivianne Rodrigues and
Richard Leong in New York and Emelia Sithole-Matarise, Patrizia
Kokot, Santosh Menon and Jan Harvey in London; Writing by
Herbert Lash; Editing by James Dalgleish)
