* Global stocks rise, spurred by recovering in financials
* Oil falls more than $2 barrel on slower growth prospect
* Dollar gains vs euro as European growth shrinks 0.2 pct
(Recasts with U.S. markets, adds byline; changes dateline;
previous LONDON)
By Herbert Lash
NEW YORK, Aug 14 (Reuters) - The U.S. dollar and global
stocks snapped higher on Thursday, spurred by a rebound in
financial shares after a sharp two-day sell-off and optimism
that declining commodity prices will ease inflation concerns.
Oil fell more than $2 a barrel, erasing most of Wednesday's
gains, as faltering prospects for global economic growth
prompted traders to take profits.
Higher oil prices earlier in the day helped energy and
mining shares in Europe, while a slide in crude later provided
relief for investors on Wall Street.
U.S. financial shares rebounded from an 8 percent drop over
the past two sessions, in part on the view that the latest U.S.
government data showed inflation pressures may have peaked so
the Federal Reserve will keep interest rates steady.
Data on both sides of the Atlantic pointed to more scope
for policy-makers to leave their respective benchmark interest
rates unchanged or even lower them, helping banks reverse some
of their recent losses.
In Europe, UBS <UBSN.VX> rose 3.6 percent, Standard
Chartered <STAN.L> gained 3.7 percent and BNP Paribas <BNPP.PA>
gained 1.2 percent.
In the United States, shares of Bank of America Corp
<BAC.N> were a top boost on the S&P 500, and led the Dow's
financial constituents with a gain of nearly 3 percent.
JPMorgan Chase <JPM.N> was also a standout, up more than 2
percent. The No. 3 U.S. bank roiled investors earlier in the
week with news that it took $1.5 billion of further write-downs
as it grapples with fallout from the U.S. housing slump.
"The fact that financials are on the mend is part of what's
giving the market buoyancy today," said Peter Kenny, managing
director at Knight Equity Markets in Jersey City, New Jersey.
"The only hope that this market has is that with the
commodity prices having come down fairly substantially over the
last month or so, that trend will continue. If it continues it
will go a long way in helping the Fed not have to raise
rates."
Before 1 p.m., the Dow Jones industrial average <> was
up 174.65 points, or 1.51 percent, at 11,707.61. The Standard &
Poor's 500 Index <.SPX> was up 13.05 points, or 1.01 percent,
at 1,298.88. The Nasdaq Composite Index <> was up 31.58
points, or 1.30 percent, at 2,460.20.
Oil and gas shares were the top performing sector on the
European market as oil futures held above $115 a barrel, before
tumbling later in the day.
StatoilHydro <STL.OL> gained 2.7 percent, while
heavyweights Royal Dutch Shell <RDSa.AS> added 1.9 percent and
BP <BP.L> 0.5 percent.
The FTSEurofirst 300 index <> of top European shares
ended up 0.5 percent at 1,185.64 points.
U.S. Treasuries prices rose on the view that a slow economy
and receding commodity prices would alleviate inflation and let
the Federal Reserve keep interest rates unchanged until 2009.
The dollar rose versus the euro as currency traders saw
signs of higher U.S. inflation as a strength while reports of a
contraction in the euro zone's economy as a weakness.
U.S. consumer prices rose at twice the rate expected in
July. CPI, a key gauge on inflation, rose 0.8 percent in the
month after a 1.1 percent jump in June. That was far above the
0.4 percent gain forecast by economists polled by Reuters.
Higher consumer prices initially would boost the case for
U.S. rate hikes -- and boost the return on dollar-denominated
assets. But over time it would hurt the U.S. economy.
"Higher inflation is positive for short-term interest rates
in general," said Bob Lynch, a currency strategist at HSBC in
New York. "But an inflation-driven rise in yields wouldn't
necessarily be good for the dollar in the medium term."
A bigger-than-expected 0.3 percent rise in core U.S. CPI,
which strips out volatile food and energy prices, startled bond
traders enough to provoke a brief flurry of selling.
But the selling was short-lived on the belief weaker global
growth and a recent pullback in oil prices will help subdue
inflation in coming months. Also, Treasuries gave up ground on
Wednesday when a rally in oil prices revived inflation fears.
U.S. light sweet crude oil <CLc1> fell $3.22 to $112.78 a
barrel.Spot gold prices <XAU=> fell $21.00 to $804.60.
"The market believes weak growth and weakened demand will
arrest inflation," said Josh Stiles, senior bond strategist at
IDEAglobal. "That's why Treasuries survived that 0.3 percent
increase in core CPI."
The benchmark 10-year U.S. Treasury note <US10YT=RR> rose
6/32 to yield 3.91 percent. The 30-year U.S. Treasury bond
<US30YT=RR> added 18/32 to yield 4.53 percent.
The euro <EUR=> fell 0.93 percent at $1.4785.
The dollar rose against major currencies, with the U.S.
Dollar Index <.DXY> up 0.71 percent at 76.794. Against the yen,
the dollar <JPY=> was down 0.42 percent at 109.93.
The European currency is now more than 10 cents below a
record high of $1.6038 struck in July.
The euro also declined against sterling. It traded 0.5
percent lower at 79.41 pence <EURGBP=>.
German and French gross domestic product shrank in the
second quarter, culminating in a 0.2 percent contraction in
overall euro area growth that raised the possibility of
recession in Europe.
The dismal readings came a day after the Bank of England
issued a bleak outlook for the UK economy, while official
figures showed Japan's economy shrank in the second quarter and
Australia's central bank said it would not wait for inflation
to fall before cutting interest rates.
Worries about Japan's economy pushed the Nikkei share
average <> down 0.5 percent. The MSCI Asia-Pacific
ex-Japan index <.MIAPJ0000PUS> edged up 0.1 percent, after
falling to a 17-month low on Wednesday.
(Reporting by Vivianne Rodrigues, Ellen Freilich, Walter
Brandimarte and Frank Tang in New York; Amanda Cooper and
Golnar Motevalli in London)
(Writing by Herbert Lash. Editing by Richard Satran)
