* Global stocks rally as oil slides further; banks soar
* Oil sinks below $125 a barrel; gold slips near 3 percent
* Bonds fall as traders unwind safe-haven gains
* Dollar extends gains as stocks surge, oil prices fall
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, July 23 (Reuters) - Global stocks rose on
Wednesday, driven by a strengthening dollar, sliding oil prices
and a surge in bank stocks in anticipation of a bailout in the
slumping U.S. housing finance sector.
Oil prices fell $4 a barrel to a six-week low after a U.S.
government report reinforced the belief that high prices and
economic turmoil will reduce the demand for fuel.
The sliding oil prices and rising stocks combined to cut
the safe haven appeal for U.S. and euro zone government debt,
pushing bond prices lower. Gold's appeal as a hedge against
inflation lost some luster as well, as prices fell almost 3
percent.
The drop in oil and improving confidence in the heavily hit
U.S. financial sector helped the dollar rally to a one-month
peak against the yen and a two-week high against the euro.
The dollar later pared some gains versus the yen after a
Federal Reserve survey of regional economic conditions showed
activity slowed somewhat since the last report.
Investors snapped up shares and bonds of mortgage finance
companies Fannie Mae <FNM.N> and Freddie Mac <FRE.N>, which
would receive an emergency government lifeline under a bill
President George W. Bush was expected to sign into law.
Concerns about the health of the two companies, which own
or guarantee almost half of the $12 trillion in U.S. mortgage
debt outstanding, had weighed on financial markets and dashed
hopes for a quicker recovery in struggling housing market.
"Congress is planning on passing this housing bill today
and the president said he was going to sign it," said Ronald
Simpson, managing director of global currency analysis at
Action Economics in Tampa, Florida.
"While it's not a fix to the problem, it certainly is going
to allay some fears at least for the short term," he said.
Shares of Freddie Mac jumped 13 percent to $10.96, while
Fannie Mae climbed 11.2 percent to $14.90.
Wall Steet trading was fueled by hedge funds buying
financial shares and selling oil. This marked a reversal of a
trend in place much of the year in which they were long oil and
short financials. Some analysts attributed the trades to a
recent clampdown by the Securities and Exchange Commission on
certain types of short selling in 19 financial companies.
"A lot of hedge funds, particularly those involved in short
trading had the long-oil/short-financials trade for some time,"
said Rick Meckler, president of investment firm LibertyView
Capital Management in Jersey City, New Jersey.
"So once that trade started to reverse, it's provided
particularly strong support even to banks that have had weak
quarterly results."
Corporate earnings sent mixed signals, with Boeing Co
<BA.N> reporting a bigger-than-expected drop in profit while
AT&T <T.N> posted quarterly results that showed
stronger-than-expected wireless growth.
The Dow Jones industrial average <> ended 29.88 points,
or 0.26 percent, higher at 11,632.38. The Standard & Poor's 500
Index <.SPX> ended 5.19 points, or 0.41 percent, higher at
1,282.19. The Nasdaq Composite Index <> ended 21.92
points, or 0.95 percent, higher at 2,325.88.
Wall Street:
European shares rose more than 2 percent as banks enjoyed
their best day in four months, while automakers gained on
strong earnings and a fall in crude oil.
Banks, which are still down 30 percent so far this year,
recorded their biggest one-day gain since mid-March with the
DJStoxx European banking index <.SX7P> soaring 6.2 percent.
HBOS <HBOS.L> rallied 16.8 percent on trader speculation
that Spain's BBVA <BBVA.MC> had cast an acquisitive eye on the
British lender. Both banks declined to comment.
Other big advancers included Barclays <BARC.L>, up 11.8
percent, Credit Agricole <CAGR.PA>, up 7.4 percent, and Credit
Suisse <CSGN.VX>, up 7.1 percent.
The FTSEurofirst 300 index <> of top European shares
closed 2.1 percent higher at 1,188.99 points.
Oil's slide extends its losses to more than $20 from the
all-time peak above $147 a barrel hit July 11 -- the steepest
drop in dollar terms in history.
"The deteriorating demand picture reinforces our belief
that oil prices are approaching a tipping point," investment
bank Lehman Brothers said in a research note.
The U.S. Energy Information Administration (EIA)
said gasoline stocks rose by 2.9 million barrels last week
against forecasts of a 300,000 barrels build.
U.S. crude oil <CLc1> prices fell $3.98 to settle at
$124.44 a barrel after touching a low of $124.30. London Brent
crude <LCOc1> fell $4.11 to $125.44 a barrel.
Gold ended nearly 3 percent lower as the dollar surged and
crude oil prices sank, denting gold's appeal as an alternative
investment in times of financial stress.
A slide in oil prices soothed some of the inflation fears
that have supported gold, while other commodities such as
grains and base metals also slipped.
Gold <XAU=> last traded at at $921.35/922.95 in New York.
U.S. Treasury debt prices fell, taking benchmark yields to
their highest in nearly a month, while euro zone government
bonds fell for a sixth straight session.
The benchmark 10-year U.S. Treasury note <US10YT=RR> fell
6/32 to yield 4.12 percent. The 30-year U.S. Treasury bond
<US30YT=RR> fell 12/32 to yield 4.68 percent.
The dollar rose against major currencies, with the U.S.
Dollar Index <.DXY> up 0.45 percent at 72.786. Against the yen,
the dollar <JPY=> rose 0.48 percent at 107.86.
The euro <EUR=> fell 0.60 percent at $1.5688.
An easing of risk aversion also was seen overnight in Asia,
where Japan's Nikkei share average <> rose 1 percent to a
two-week high. The Nikkei has posted back-to-back gains of at
least 1 percent for the first time since April.
Outside of Japan, shares in the Asia-Pacific region
<.MIAPJ0000PUS> climbed 2.2 percent to their highest level in
three weeks, according to an MSCI index.
Hong Kong's Hang Seng <> rose 1.9 percent to a
one-month high.
(Reporting by Kristina Cooke, Richard Valdmanis, Vivianne
Rodrigues, Frank Tang and Chris Reese in New York and Patrizia
Kokot, Alex Lawler, Santosh Menon and Jan Harvey in London.)
(Reporting by Herbert Lash. Editing by Richard Satran)
