(Adds close of U.S. markets)
* U.S. stocks rise on takeover, rising oil shares
* 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) - U.S. stocks rose on Thursday
on reassuring testimony by Federal Reserve Chairman Ben
Bernanke, who helped calm investors buffeted by credit worries
and volatile trading, and optimism over a $15.3 billion
takeover in the chemicals sector.
Worries about the health of mortgage lenders Fannie Mae and
Freddie Mac, and investment bank Lehman Brothers, rattled
investors and led stock and bond prices up and down all day.
Adding to anxiety, oil prices jumped nearly $6 a barrel
amid threats to production in Nigeria and Brazil and another
missile test by Iran that escalated tensions with the West.
A bright spot in another difficult day for financial stocks
on Wall Street was Dow Chemical Co's <DOW.N> announcement it
would buy rival Rohm and Haas Co for $15.3 billion.
The deal, which sent Rohm & Haas <ROH.N> shares up 64
percent to $73.62, is backed by Warren Buffett's Berkshire
Hathaway <BRKa.N> and the Kuwait Investment Authority.
The Dow Jones industrial average <> closed up 81.58
points, or 0.73 percent, at 11,229.02. The Standard & Poor's
500 Index <.SPX> was up 8.70 points, or 0.70 percent, at
1,253.39. The Nasdaq Composite Index <> was up 22.96
points, or 1.03 percent, at 2,257.85.
A rise in oil heavyweights Exxon Mobil <XOM.N> and Chevron
<CVX.N> also boosted U.S. stocks.
Spot gold prices <XAU=> rose $19.20 to $946.95 an ounce.
The continuing weakness of financial stocks, though, pushed
investors to make safety bids for government debt during the
day although bond prices slipped after stocks rallied late in
the session.
Bernanke and Treasury Secretary Henry Paulson told Congress
the Fed should get a stronger hand in supervising investment
banks to help shield the economy from problems like the ones
that forced the emergency rescue of Bear Stearns in March.
Bernanke said authorities are working within their existing
authority to settle markets roiled by a credit crunch.
"Bernanke and Paulson are in essence trying to calm the
market," said Bucky Hellwig, senior vice president at Morgan
Asset Management, in Birmingham, Alabama.
Uncertainty over whether Fannie Mae <FNM.N> and Freddie Mac
<FRE.N>, the two largest mortgage lenders, would need to raise
enormous amounts of new capital soured early trading.
Former St. Louis Federal Reserve President William Poole
stoked concerns by saying the two companies were "insolvent"
and may need a U.S. government bailout, Bloomberg News said.
Fannie and Freddie were down about 14 percent and 21
percent, respectively, 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;
Pimco said the company continued to trade with Lehman.
Lehman fell more than 13 percent.
"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.
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.
The pan-European FTSEurofirst 300 index <> ended down
2.1 percent at 1,156.98 points.
In the United States, the S&P Energy Index <.GSPE> rose
2.68 percent.
U.S. government debt fell. The benchmark 10-year U.S.
Treasury note <US10YT=RR> fell 2/32 to yield 3.81 percent. The
30-year U.S. Treasury bond <US30YT=RR> fell 6/32 to yield 4.42
percent.
U.S. crude <CLc1> settled up $5.60 at $141.65 a barrel, off
an earlier high of $142.10 a barrel. London Brent crude <LCOc1>
settled $5.45 higher at $142.03 a barrel.
The dollar was dragged down by persistent worries over the
health of U.S. financial sector.
The dollar fell against major currencies with the U.S.
Dollar Index <.DXY> down 0.10 percent at 72.492. Against the
yen, the dollar <JPY=> rose 0.23 percent at 107.00.
The euro <EUR=> added 0.27 percent at $1.5783.
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)
