(Adds close of U.S. markets)
* Oil falls to almost $128 a barrel, eases inflation fears
* Tech shares advance as lower oil is seen boost spending
* Dollar rises broadly after rise in April U.S. home sales
By Herbert Lash
NEW YORK, May 27 (Reuters) - Oil prices fell sharply and
the dollar rose on Tuesday, easing inflation fears and helping
a tech-led rebound in U.S. equity markets as investors bet
cheaper crude will revive consumer and business spending.
A 2.6 percent drop in oil prices to almost $128 a barrel
was welcomed by stock market investors after crude hit a record
above $135 last week, a spike that fanned worries about
inflation and the outlook for corporate profits.
The dollar rose broadly after a report showed U.S. new home
sales unexpectedly climbed in April, while soft data out of
Europe raised concerns over the relative health of the
euro-zone economy.
U.S. crude <CLc1> traded down $4.01 to $128.18 a barrel in
late post settlement trade, after settling down $3.34 at
$128.85. London Brent crude <LCOc1> settled down $4.06 at
$128.31 a barrel.
Persistently high energy prices kept investors wary about
the prospects for inflation, which pushed U.S. Treasury debt
prices lower and sidelined investors in European stocks.
Europe's stocks opened weaker amid concerns that rising
inflation would add potential credit-related problems in the
banking sector.
In U.S. equity markets, shares of consumer-oriented
companies, including retailers, gained along with technology
shares, even as energy companies, led by oil behemoth Exxon
Mobil Corp <XOM.N>, declined in line with falling oil prices.
"Oil being down helps because people lately seem to be
thinking of technology as discretionary (spending)," said Peter
Jankovskis, director of research at OakBrook Investments in
Lisle, Illinois. "I really think what we're doing is building a
very solid base for a strong rally to end the year."
The Dow Jones industrial average <> rose 68.72 points,
or 0.55 percent, at 12,548.35. The Standard & Poor's 500 Index
<.SPX> gained 9.41 points, or 0.68 percent, at 1,385.34. The
Nasdaq Composite Index <> rose 36.57 points, or 1.50
percent, at 2,481.24.
Leading the Nasdaq higher were shares of iPod- and
iPhone-maker Apple, which jumped 2.6 percent, and a 3 percent
gain in Internet research company Google Inc <GOOG.O>
International Business Machines Corp <IBM.N> led gainers
on the both the blue-chip Dow and broad market Standard &
Poor's 500 Index, with a gain of more than $3.12 to $127.32.
News on the economic front still pointed to a troubled
housing market and waning consumer confidence.
Prices of U.S. single-family homes plunged a record 14.4
percent in March from a year earlier, while consumer confidence
slumped to its lowest in 16 years in May as gasoline prices
surged.
The Standard & Poor's/Case Shiller composite index of 20
metropolitan areas showed prices of previously owned homes fell
2.2 percent in March, deepening their year-on-year decline.
Separately, the Conference Board said its consumer
confidence index slumped to 57.2 this month from 62.8 in April
as rising gasoline costs and falling home prices made Americans
increasingly nervous about current conditions and the future.
European stocks erased early gains after banking concerns
resurfaced while data showing deteriorating consumer and
business morale in many parts of Europe. The soft economic
indicators also weighed on the euro.
The FTSEurofirst 300 <> index of top European shares
fell 0.4 percent to a month low of 1,314.42 points.
Falling oil prices and a stronger dollar helped the
European market pare some losses but weighed on the energy
sector, making BP <BP.L> the single largest drag on the index.
Concern about inflation, fueled by the 15 percent rise in
the price of oil this month, has stripped the FTSEurofirst
index of all of May's gains.
"People are just increasingly concerned about the inflation
risk picking up and the U.S. economy deteriorating," said
Andrea Williams, head of European equities at Royal London
Asset Management.
Responding to inflation concerns, the benchmark 10-year
U.S. Treasury note <US10YT=RR> fell 20/32 to yield 3.93
percent. The 30-year U.S. Treasury bond <US30YT=RR> fell 34/32
to yield 4.65 percent.
The dollar rose against major currencies, with the U.S.
Dollar Index <.DXY> up 0.57 percent at 72.386.
The euro <EUR=> fell 0.57 percent at $1.5684.
Gold ended 2 percent lower at the lowest level in a week on
a stronger dollar and a sharp decline in oil prices.
Spot gold <XAU=> dropped as low as $903.50 an ounce and was
at $907.10/908.30 an ounce by New York's last quote.
"The two key drivers have been both inflation concerns and
the movements of the dollar," said Suki Cooper, a metals
analyst at Barclays Capital.
In Asia stocks rebounded from Monday's dip as bargain
hunters scoured the market after five days of losses.
Japan's Nikkei <> gained 1.5 percent, a day after the
index posted its biggest one-day drop in six weeks.
The MSCI <.MIAPJ0000PUS> index of Asian stocks outside of
Japan was up 0.6 percent.
(Reporting by Ellis Mnyandu, Matthew Robinson, Nick Olivari
and John Parry in New York; Joanne Morrison in Washington and
Amanda Cooper, George Matlock and Karl Plume in London)
(Reporting by Herbert Lash. Editing by Richard Satran)
