(Recasts with U.S. markets, changes dateline; previous
LONDON)
* Oil rises on renewed Iran tension, Brazil strike threat
* Dollar falls versus euro as credit worries sweep markets
* Aluminum hits all-time high on Chinese output cut
By Herbert Lash
NEW YORK, July 10 (Reuters) - Credit jitters swept global
markets on Thursday although U.S. stocks prices pulled out of a
swoon that started the prior session after Federal Reserve
Chairman Ben Bernanke said officials are focused on stabilizing
the financial system.
Oil rose to near $138 a barrel on renewed tensions between
Iran and the West, and the threat of a potential strike among
oil workers in Brazil.
As credit market worries mounted, interest rates eased on
U.S. Treasuries, wiping out the dollar's gains against the euro
and trimming gains versus the yen.
Bernanke and Treasury Secretary Henry Paulson told Congress
the Fed should get a stronger hand in supervising investment
banks to help shield the broader economy from problems like the
ones that forced the emergency rescue of investment bank Bear
Stearns. Bernanke, in congressional testimony, said authorities
are working within their existing authority to settle markets
roiled by a credit crunch.
U.S. and euro zone government debt was mixed as investors
reacted to each new stock market move, and to fleeting changes
in perceptions about the health of the U.S. financial system.
Notable weakness in financial stocks generally supported a
flight to safety bid for government debt, but it was vulnerable
to any sense of relief, however fleeting. The equity market
dropped precipitously at the end of Wednesday's session as
credit concerns overwhelmed trading and the Dow fell more than
2 percent to its worst close since August 2006.
"It's a stock market trade again," said John Spinello,
Treasury bond strategist at Jefferies & Co. in New York.
Driving the high anxiety was uncertainty over whether U.S.
mortgage underwriters Fannie Mae <FNM.N> and Freddie Mac
<FRE.N> would need to raise enormous amounts of new capital.
Former St. Louis Federal Reserve President William Poole
further stoked concerns after he said the two companies were
"insolvent" and may need a U.S. government bailout, according
to Bloomberg News.
Fannie and Freddie were down about 11 percent and 22
percent, respectively, after midday, having pared losses that
had pushed the shares far lower earlier in the session.
Capital-raising would dilute the value of current Fannie
and Freddie shareholdings.
Also driving volatility was Lehman Brothers <LEH.N>, which
was hit by later-denied talk that bond fund Pimco was reducing
business with the bank. A Lehman spokesman declined to comment.
A Pimco spokesman said the fixed income powerhouse continued to
trade with Lehman.
"A lot of eyes are on Lehman at the moment. That's the kind
of thing that puts the fox in the hen coop as far as the
financials are concerned," said Jeremy Batstone-Carr, head of
private client research at Charles Stanley in London.
"One thing is pretty certain and that is that we are some
distance from the financial sector being out of the woods,"
Batstone-Carr said.
Before 1 p.m., the Dow Jones industrial average <> was
up 57.16 points, or 0.51 percent, at 11,204.60. The Standard &
Poor's 500 Index <.SPX> was up 5.49 points, or 0.44 percent, at
1,250.18. The Nasdaq Composite Index <> was up 21.37
points, or 0.96 percent, at 2,256.26.
In a sign of market volatility, oil and banking shares led
European stocks to fall more than 2 percent, but oil and to a
lesser extent banking stocks helped lift U.S. indexes.
In Europe, the oil sector topped the losers and took 3.5
points off the pan-European index. Total <TOTF.PA>, BP <BP.L>
and Royal Dutch Shell <RDSa.L> shed between 2.2 percent and 3
percent after U.S. data on Wednesday showed a surprise rise in
gasoline stocks, a potential sign of falling consumer demand.
The pan-European FTSEurofirst 300 index <> ended down
2.1 percent at 1,156.98 points.
U.S. oil heavyweights Exxon Mobil <XOM.N>, ConocoPhillips
<COP.N> and others rose, boosting the S&P Energy Index <.GSPE>
up 0.7 percent.
U.S. government debt fell. The benchmark 10-year U.S.
Treasury note <US10YT=RR> was down 6/32 to yield 3.83 percent.
The 30-year U.S. Treasury bond <US30YT=RR> fell 13/32 to yield
4.44 percent.
Oil rose on Thursday to near $138 a barrel due to
escalating tensions between Iran and the West and threats of an
oil workers strike at Brazil's Petrobras next week.
The upside in rising oil prices was also limited by
International Energy Agency forecasts for a more comfortable
supply outlook next year.
U.S. light sweet crude oil <CLc1> rose $1.29 to $137.34 per
barrel.
The dollar was down against major currencies, with the U.S.
Dollar Index <.DXY> off 0.01 percent at 72.558. Against the
yen, the dollar <JPY=> was down 0.31 percent at 107.08.
The euro <EUR=> was up 0.17 percent at $1.5767.
"The dollar latest move lower reflects credit worries. We
have Fannie and Freddie, weakness in the stock market, and risk
aversion. All these are hurting the dollar," said Ron Simpson,
director of FX strategy at Action Economics in Tampa, Florida.
Gold rallied nearly 2 percent, boosted by firmer oil prices
and talk of a producer buying back material it had previously
sold forward.
Spot gold prices <XAU=> rose $11.30 to $939.05 an ounce.
Major Asian stock indexes cut early losses as banks gained
on expectations recent falls had been too severe, while more
stable oil prices eased some recent inflation concerns.
Shares of companies in the Asia-Pacific region excluding
Japan <.MSCIAPJ> fell 0.2 percent on the day.
Japan's Nikkei share average <> erased earlier falls
to post a 0.1 percent gain.
(Reporting by Gertrude Chavez-Dreyfuss, Ellen Freilich in New
York and Jane Merriman, Jan Harvey and Rebekah Curtis, Anna
Stablum and David Sheppard in London
(Reporting by Herbert Lash. Editing by Richard Satran)
