* Stocks edge higher, bonds slip on mixed housing data
* Euro at six-month low vs dollar as euro zone data weighs
* Oil rises as Hurricane Gustav heads near Gulf of Mexico
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, Aug 26 (Reuters) - The dollar rose and U.S.
stocks edged higher on Tuesday as optimism about U.S. consumer
confidence and the struggling housing market overcame fresh
worries about the flagging U.S. economy and financial sector.
Oil prices rose as Hurricane Gustav churned through the
Caribbean and took aim at U.S. oil and natural gas
installations in the Gulf of Mexico. Energy shares rose on
fears Gustav could wreak havoc on Gulf instalations.
The U.S. dollar climbed to six month highs against the euro
and held gains after the minutes from the last Federal Reserve
meeting provided no surprises. However, the Aug. 5 meeting of
Fed policy-makers highlighted both risks to the U.S. economic
growth outlook and concerns about rising inflation pressures.
Members of the rate-setting Federal Open Market Committee
agreed that softening labor markets, high energy prices and a
continuing housing contraction would weigh on future growth,
leaving U.S. economic activity "damped" for several quarters.
U.S. stocks initially fell after the release of the
minutes, while U.S. Treasury debt remained weaker and the
dollar held steady at higher levels.
But the Dow and S&P 500 closed higher, led by Exxon Mobil
<XOM.N> and other energy stocks, a rebound in insurer American
International Group <AIG.N> and JPMorgan Chase and Citigroup.
The Dow Jones index <> closed up 26.05 points or 0.23
percent at 11,412.30, while the benchmark S&P500 index <.SPX>
was up 4.63 points or 0.37 percent at 1,271.47.
A jump in U.S. consumer confidence and expectations of euro
zone interest rate cuts boosted the dollar as the single
currency tumbled on weak German data that raised recession
fears in the euro zone.
The Ifo German business climate index for August fell more
than expected to a three-year low, while German GDP contracted
in the second quarter for the first time since 2004. German
consumer sentiment also worsened more than expected, hitting a
five-year low.
"The plunge in Ifo business confidence in August has raised
the risk that, right after the ECB rate hike in July, Germany
may be falling into recession instead," said Bank of America's
chief economist, Holger Schmieding.
"With Spain turning down, Italy struggling and France
losing a lot of momentum too, a serious German downturn would
not bode well for the euro zone as a whole as well, to put it
mildly."
In contrast, U.S. economic data were less bleak. Consumer
confidence rose in August, while the sales of newly constructed
U.S. single family homes in July increased from a June pace
that was the slowest in nearly 17 years.
"The U.S. economy is still fairly weak but the rest of the
world is catching up with it," said Kevin Chau, a currency
strategist, at IDEAglobal in New York.
Investors were little troubled by news from the U.S.
Federal Deposit Insurance Corp that 117 banks were on its
troubled banks list at the end of the second quarter, up from
90 after the first three months of the year.
FDIC chairman Sheila Bair said that more banks will come
onto the list as credit problems worsen, but she categorized 98
percent of U.S. banks as well capitalized.
Bair also said the amount of securities held by U.S. banks
and issued by troubled mortgage finance giants Fannie Mae and
Freddie Mac was "not problematic."
The reading of U.S. consumer confidence cheered equity
investors in Europe, but the euro zone government debt market
was broadly underpinned by concerns over the economic outlook
and more jitters over the health of financial institutions.
The FTSEurofirst 300 <> index of top European shares
closed with a gain of 0.16 percent at 1,171.09 points, having
fallen as much as 1.4 percent earlier on the back of the steep
slide in German business sentiment.
Mobile phone maker Nokia <NOK1V.HE> jumped almost 3.0
percent after the company unveiled two new high-end models.
Technology <.SX8P> was the day's strongest sector in Europe
with a gain of 2.0 percent.
Oil rose on Gustav concerns. Most weather models showed
Gustav entering the Gulf, home to one-quarter of U.S. oil
production and 15 percent of natural gas output, by early
Sunday.
U.S. crude <CLc1> settled up $1.16 at $116.27 a barrel,
while London Brent crude <LCOc1> traded up 60 cents to settle
at $114.63 a barrel.
"All of the oil platforms off Texas and Louisiana will
probably be at risk, but that's real long-range," Eric Wilhelm,
a senior meteorologist at AccuWeather Inc, told Reuters. Gustav
could hit the Gulf as a Category 3 hurricane, he said.
U.S. gold futures held onto gains to end higher, erasing
initial losses, as higher crude oil prices more than offset a
dollar rally. December gold futures <GCZ8> settled up $2.40 at
$828.10 an ounce in New York.
Investors turned away from lower-risk Treasuries after data
showed a rise in new home sales and a decline in the inventory
of new homes for sale in July. Some investors interpreted the
data as a sign the U.S. housing slump may not be worsening. The
benchmark 10-year U.S. Treasury note yield was little changed
around 3.78 percent.
Asian stocks fell more than 1.0 percent overnight on
persistent jitters about the credit crisis and global growth.
Japan's Nikkei stock index <> cut some losses to end
down 0.8 percent, near a five-month low touched on Friday.
Stocks outside Japan in the Asia-Pacific region were off
1.4 percent, within sight of a 17-month low hit on Thursday,
according to an MSCI index <.MIAPJ0000PUS>.
(Reporting by Matthew Robinson, Kristina Cooke, Nick Olivari,
Chris Reese and Alex Lawler, Jan Harvey and Kirsten Donovan in
London and Peter Starck in Frankfurt)
(Reporting by Herbert Lash. Editing by Richard Satran)
