* Market unease over China lifts yen, but euro resilient
* Treasury prices up as investors go for lower risk assets
* China losses shake fragile economic confidence
(Updates to U.S. markets close)
By Herbert Lash
NEW YORK, Aug 19 (Reuters) - U.S. stocks rebounded and oil
closed above $72 a barrel on Wednesday after data suggested a
recovery in U.S. oil demand, a surprise for investors who
earlier were fretting over a sharp slide in Chinese equities.
A U.S. government inventory report showed a huge drop in
crude supplies last week, boosting oil futures by more than $3
a barrel and lifting Wall Street sentiment that had turned dour
after a 4.3 percent a drop in the Shanghai Composite Index
<>.
The drop took losses on the key Chinese index to 20 percent
over the past two weeks, a plunge hard for investors to ignore
considering China's role in any global recovery.
Copper fell to its lowest level in just over two weeks, and
government debt prices in Europe and the United States rose as
investors sought havens in less risky assets.
But oil reversed early losses after the U.S. Energy
Information Administration (EIA) said crude stocks fell by 8.4
million barrels last week, confounding analysts' expectations
for a rise of 1.3 million barrels. []
"I think these (demand) changes are reflective of an
improving economy, but one must be cautious because these
changes are versus year-ago weak numbers," said API chief
economist John Felmy.
The decline in crude stocks was caused by rising production
in refineries but also by a sharp drop in oil imports, with
traders holding more inventories in tankers offshore as they
await higher prices. []
Still, the news lifted U.S. stocks that had fallen about 1
percent earlier in the session. The S&P Energy index <.GSPE>
gained almost 2 percent, making it the top sector performer.
Exxon Mobil <XOM.N> closed 2.3 percent higher while Chevron
<CVX.N> gained 1.8 percent.
"Oil is helping us," said Rick Meckler, president of
LibertyView Capital Management in New York. "It's a big part of
the index and energy companies have helped turn this market
before."
The Dow Jones industrial average <> ended up 61.22
points, or 0.66 percent, at 9,279.16, while the Standard &
Poor's 500 Index <.SPX> gained 6.79 points, or 0.69 percent, to
996.46. The Nasdaq Composite Index <> rose 13.32 points,
or 0.68 percent, to 1,969.24.
European equities ended lower after a choppy session, with
weaker financial and automobile stocks outpacing a rise in oil
and gas shares. But oil producers helped Britain's leading
share index to end slightly higher.
The FTSEurofirst 300 <> index of top European shares
closed 0.3 percent lower at 931.98 points.
The dollar fell 0.7 percent against the Japanese currency
<JPY=>, to 93.98 yen, after China's stock market slide raised
concerns about the strength of a global recovery, increasing
demand for safe-haven assets.
But the recovery in U.S. equities later helped higher-risk
currencies recover losses, and the euro rose 0.7 percent to
$1.4236, on track for its biggest daily rise against the dollar
in more than two weeks.
The spike in oil prices also helped higher-risk assets and
currencies recover losses sparked by China's stock market.
"Negative sentiment hasn't disappeared but it has abated,
with both the S&P and Dow paring losses," said Matthew Strauss,
senior currency strategist at RBC Capital Markets in Toronto.
"That gave the market a chance to push the euro higher."
The benchmark 10-year U.S. note <US10YT=RR>, meanwhile, was
up 14/32, with the yield at 3.4646 percent, down from 3.517
percent on Tuesday's close.
The MSCI index <.MIAPJ0000PUS> of Asia Pacific stocks
outside Japan slipped 0.3 percent, while Japan's Nikkei share
average <> finished 0.8 percent lower.
Emerging market stocks ended practically unchanged
according to an MSCI index <.MSCIEF>.
(Additional reporting by Walter Brandimarte; Editing by Leslie
Adler)
