* Oil prices slide in biggest one-day fall since 2004
* Stocks gains as hopes of Lehman investor buoys sentiment
* Bonds fall on stock market gains, loss of save-haven bid
* Dollar slips as rate hike prospects, inflation fears ebb
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, Aug 22 (Reuters) - Oil prices fell sharply on
Friday in their biggest one-day slide since 2004, helping lift
stocks that rallied early in the day on hopes battered U.S.
investment bank Lehman Brothers will gain a major investor.
The possible bailout of Lehman, viewed as one of the Wall
Street firms most exposed to the housing debt crisis, restore
some of the confidence Wall Street has lost as banks struggle
to raise funds.
Shares of big manufacturers, including United Technologies
<UTX.N>, airlines and consumer-oriented companies also
benefited from oil's slide, which curbed inflation concerns and
led U.S. and euro zone government debt prices lower.
Remarks by Federal Reserve Chairman Ben Bernanke, who
suggested U.S. interest rates would stay on hold, also cut into
the safe-haven appeal of bonds.
The dollar drifted back from its highs on Bernanke's
comments because some currency traders have been anticipating
U.S. yields will outpace rates in other countries.
The euro was on track for its best weekly gain versus the
dollar since mid-July, despite Friday's losses.
Prospects of a Lehman white knight added to upbeat investor
sentiment that was aided by soothing remarks from influential
U.S. investor Warren Buffett. Investors turned to the higher
risk of equities and away from the relative safety of debt.
Lehman, whose shares have lost nearly 80 percent of their
value this year, has taken $7 billion in write-downs and
several brokerages this week forecast more.
"A potential willing suitor for a company that recently has
been all about headline risk is providing solid footing for the
(financial) sector," said John Augustine, chief investment
strategist at Fifth Third Private Bank in Cincinnati.
"We're getting more constructive on the stock market, and
we would say the next big move up for financials would be when
you have more willing merger-and-acquisition activity."
Lehman shares jumped more than 12 percent after the Korea
Development Bank [] said it was an acquisition target.
Lehman later pared gains to close up 5 percent at $14.41.
The Dow Jones industrial average <> rose 197.85 points, or 1.73 percent, at 11,628.06. The Standard & Poor's 500 Index
<.SPX> added 14.48 points, or 1.13 percent, at 1,292.20. The
Nasdaq Composite Index <> gained 34.33 points, or 1.44
percent, at 2,414.71.
European shares ended sharply higher, lifted by a rebound
in financial stocks on the prospect Lehman might be bought and
easing oil prices.
Buffett boosted equities by saying that stocks looked more
attractive now than they did a year ago.
"Let's hope he is right. Most of us think he is. The bulls
would agree on his comments about valuations," said Mike
Lenhoff, chief strategist at wealth managers Brewin Dolphin.
The pan-European FTSEurofirst 300 index <> ended up
1.8 percent at 1,175.79, but was off 1.2 percent on the week.
Oil's slide added to a more than 20 percent fall in prices
since mid-July and could increase the chance oil cartel OPEC
will cut official production limits when the group meets in
Vienna on Sept. 9.
U.S. crude <CLc1> fell $6.59, or 5.4 percent, to settle at
$114.59 a barrel -- the biggest fall in percentage terms since
December 2004. London Brent crude <LCOc1> fell $6.24 to $113.92
a barrel.
U.S. gold futures ended lower as a strong dollar and
falling oil prices prompted investors to sell commodities
across the board.
December gold ftures <GCZ8> settled down $5.50 at $833.50
an ounce in New York.
Bernanke, speaking at a Fed symposium in Jackson Hole,
Wyoming, said a stable currency and a decline in commodity
prices should help slow inflation this year and next.
The dollar also gained on comments by Buffett, who said in
an interview that he has no bets against the dollar, which
further bolstered sentiment on the U.S. currency.
The dollar rose against major currencies, with the U.S.
Dollar Index <.DXY> up 1.01 percent at 76.808. Against the yen,
the dollar <JPY=> gained 1.56 percent at 110.04.
The euro <EUR=> fell 0.89 percent at $1.4773.
The benchmark 10-year U.S. Treasury note <US10YT=RR> fell
12/32 to yield 3.87 percent. The 30-year U.S. Treasury bond
<US30YT=RR> fell 2/32 to yield 4.47 percent.
Asian stocks fell overnight to a two-year low, down for a
fourth straight week, after oil's surge on Thursday sparked
inflation worries and the financial crisis simmered unabated.
Japan's Nikkei share average <> fell 0.7 percent to
12,666.04, and MSCI's pan-Asia stocks index <.MIAS00000PUS>
fell 0.8 percent, touching a two-year low. The Asia-Pacific
ex-Japan index <.MIAPJ0000PUS> slipped 0.03 percent.
(Reporting by Ellis Mnyandu, Gertrude Chavez-Dreyfuss, John
Parry and Frank Tang in New York and Jeremy Gaunt, Kirsten
Donovan, Bate Felix. Editing by Richard Satran)
(Reporting by Herbert Lash. Editing by Richard Satran)
