* U.S. stocks in late rally on hopes of bailout approval
* Risk-adverse yen gains, bonds rise on rescue uncertainty
* Oil slips amid financial market turmoil
* Gold climbs 4 pct as jittery investors seek safe havens
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, Sept 26 (Reuters) - Hopes the U.S. Congress will
approve plans to bail out the troubled financial sector lifted
the Dow in a late rally on Friday and left other stocks little
changed, but the lack of a deal spurred demand for
safe-havens.
Gold jumped 4 percent at one point and the yen climbed
broadly as investors piled into safer assets after news the
bailout talks had stalled and the failure of Washington Mutual,
the biggest bank closure in U.S. history, eroded confidence.
Investors flocked to cash and U.S. and euro-zone government
debt but a late rally in the shares of the biggest U.S. banks
reflected optimism lawmakers would hammer out a deal on the
bailout over the weekend tempered the flight for safety. U.S.
government debt pared gains, momentarily losing their
safe-haven bid, in late trade after stocks rallied.
"Wall Street is banking on a definitive agreement in place
before markets open on Monday," said Fred Dickson, director of
retail research at D.A. Davidson & Co in Lake Oswego, Oregon.
The late stock rally, which sent the Dow up more than 100
points, was led by big banks amid the ongoing tectonic shifts
in the financial landscape.
Shares of JPMorgan Chase & Co <JPM.N> jumped more than 10
percent after the bank capped its purchase of Washington Mutual
by selling $10 billion of stock -- 20 percent more than it had
said it wanted to raise.
And just before Wall Street trading closed came news that
Wachovia Corp <WB.N>, the No. 6 U.S. bank, was in early talks
with Citigroup, but no deal may emerge, The New York Times
reported, citing people familiar with the matter.
Meanwhile, jitters over the bailout and the economy were
not fully overcome. Interest rate futures showed investors were
betting the Federal Reserve may slash key interest rates by as
much as half a percentage point from the current 2 percent by
year-end.
In another sign of risk aversion, investors sold
high-yielding currencies such as the Australian dollar and
dumped stocks elsewhere in the world.
Central banks injected fresh liquidity into the global
banking system, helping lower soaring inter-bank borrowing
rates, but money markets remained mostly paralyzed.
"There is risk aversion at the moment and there is a huge
amount of uncertainty and that's why we're seeing gold rally
and the yen being the strongest performer across the board,"
said Shaun Osborne, chief currency strategist at TD Securities
in Toronto.
European equity markets again fell sharply while U.S.
stocks were lower most of the session. Oil prices and the U.S.
dollar slipped, another sign of widespread uncertainty.
Market jitters again hit Belgian-Dutch bank Fortis
<FOR.AS><FOR.BR> even after it denied it was facing a liquidity
crisis. Fortis said it has a funding base of 300 billion euros
and solid solvency ratios, but its shares plunged 20 percent to
a 15-year low.
"So severe is the crisis of confidence that any bank that
has funding or leverage issues, quite apart from the quality of
assets, is unnaturally vulnerable in the current environment,"
said NCB Stockbrokers strategist Bernard McAlinden in Dublin.
The collapse of Washington Mutual <WM.N>, the largest U.S.
thrift, fueled concerns about the potential fallout of the
credit crisis. Fresh data on second-quarter U.S. gross domestic
product that revised downward the government's prior growth
estimate also pointed to economic woes ahead.
But strong gains in the shares of JPMorgan, Bank of
America, Citigroup and Wells Fargo led the late rally on Wall
Street.
The Dow Jones industrial average <> closed up 121.07
points, or 1.1 percent, at 11,143.13. The Standard & Poor's 500
Index <.SPX> rose 4.09 points, or 0.34 percent, at 1,213.27.
The Nasdaq Composite Index <> fell 3.23 points, or 0.15
percent, at 2,183.34.
Bank of America rose 6.8 percent, while Citigroup gained
3.8 percent, and Wells Fargo <WFC.N> rose 9.4 percent.
Wachovia was among financial shares taking a knock, falling
27 percent on worries about heavy mortgage losses. Another
large U.S. bank, National City Corp <NCC.N>, shed 26 percent on
same concerns.
Technology shares took a heavy blow after Research In
Motion <RIM.TO><RIMM.O>, the BlackBerry maker and a tech
bellwether, warned that quarterly profit will fall short of
Wall Street's forecasts. Its shares slid 27.5 percent.
The U.S. economy grew less strongly than previously thought
in the second quarter as consumers boosted spending less
vigorously and businesses trimmed some investments, a sign of a
dimmer outlook even before the financial crisis deepened.
The FTSEurofirst 300 index <> of top European shares
ended down 1.8 percent at 1,104.79 points, with banks taking
the most points off the index. The pan-European index fell 4
percent for the week, and is off nearly 27 percent so far this
year. Miners tracked metal prices sharply lower.
Government debt prices fell.
Government debt prices rose after having fallen for most of
the session. The price of two-year Treasury notes <US2YT=RR>
rose 8/32 to yield 2.04 percent, and the benchmark 10-year U.S.
Treasury note <US10YT=RR> gained 4/32 to yield 3.85 percent.
The dollar was mostly lower. Against the yen, the dollar
<JPY=> fell 0.24 percent at 106.15, and the euro <EUR=> rose
0.08 percent at $1.461.
The yen has gained 1.6 percent against the dollar so far
this week and about 3 percent this month amid heightened
pressure in financial markets.
Oil also fell, pressured by concerns over the financial
market crisis. Further pressure came as investors, who flocked
into oil and other commodities earlier this year as a hedge
against inflation and a weak dollar, shift into safer havens.
U.S. crude <CLc1> settled at $106.89 a barrel, down $1.13,
trading between $104.25 and $108.11.
London Brent crude <LCOc1> settled at $103.54, down
$1.06.
Spot gold prices <XAU=> rose $10.50 to $886.20 an ounce.
"The main driver right now is the dollar, but also risk
aversion," said analyst Barbara Lambrecht at Commerzbank in
Germany.
Asian stocks overnight fell. Japan's Nikkei share average
<> shed 0.9 percent, and the MSCI index of Asia-Pacific
stocks outside Japan <.MIAPJ0000PUS> fell 1.7 percent.
(Reporting by Ellis Mnyandu, Richard Leong, Gertrude
Chavez-Dreyfuss in New York and Jamie McGeever, Robert Gibbons,
Humeyra Pamuk, Emelia Sithole-Matarise in London; Writing by
Herbert Lash; Editing by Leslie Adler)
