(Adds close of U.S. markets)
* Oil surges as ECB's Trichet signals euro zone rate rise
* U.S. stocks rally, spurred by oil shares; economic data
* U.S. bonds slide on economic data, dollar slumps on euro
By Herbert Lash
NEW YORK, June 5 (Reuters) - Crude oil shot up more than 4
percent, the dollar and government bonds fell on Thursday after
European Central Banker Jean-Claude Trichet made unusually
candid remarks that interest rates will likely rise in Europe.
Wall Street stocks ignored recent worries about inflation
and interest rates and jumped to their biggest gain since
mid-April. Oil stocks energized a rally sparked early in the
day by moderately favorable economic data,
Yields soared on bonds in the euro zone after European
Central Bank President Jean-Claude Trichet shocked investors by
saying interest rates may go up as early as July.
The ECB left rates on hold at 4 percent as expected, but
Trichet's comments sent shock waves across asset classes.
Oil was slow to react but investors covering positions that
had bet crude would stay on a downtrend helped push prices up
to peaks over $128 a barrel. The day's gain was the biggest
percentage rise since March 26.
U.S. stocks also soared in late trading, rising almost 2
percent, led by a surge in super-major oil companies Exxon
Mobil, Chevron and ConocoPhillips. The S&P Energy Index <.GSPE>
rose more than 4 percent.
The Dow Jones industrial average <> gained 213.97
points, or 1.73 percent, at 12,604.45. The Standard & Poor's
500 Index <.SPX> advanced 26.82 points, or 1.95 percent, at
1,404.02. The Nasdaq Composite Index <> climbed 46.80
points, or 1.87 percent, at 2,549.94.
In Europe the yield on two-year government bonds rocketed
more than 30 basis points to its highest this decade, 10-year
yields hit 4.50 percent for the first time in nearly a year and
several interest rate futures contracts had their steepest
one-day declines ever.
The benchmark 10-year U.S. Treasury note <US10YT=RR> fell
a half point to yield 4.04 percent. The 30-year U.S. Treasury
bond <US30YT=RR> fell 22/32 yield 4.74 percent.
Gold futures ended lower in spite of the sharp rally in
crude prices.
U.S. Treasury debt prices fell after a decline in U.S.
weekly jobless claims soothed recession fears and raised
expectations the Federal Reserve will boost interest rates
later this year.
U.S. stocks were also lifted by the surprisingly strong job
market data and on signs that some of the government's $152
billion stimulus package was making its way to retailers.
Boosted by Trichet's comments, the euro <EUR=> rose 1.04
percent at $1.5592.
Against major currencies the dollar fell, with the U.S.
Dollar Index <.DXY> down 0.58 percent at 73.051. Against the
yen, the dollar <JPY=> rose 0.61 percent at 105.91.
Spot gold <XAU=> fell $1.80 to $875.85.
Stocks heavily influenced by economic cycles, such as
Hewlett-Packard <HPQ.N> and Alcoa <AA.N>, responded strongly to
signs of a strengthening economy. A Morgan Stanley index of
cyclical stocks <.CYC> rose 1.7 percent. H-P rose 3.6 percent
and Alcoa added 3 percent.
"The market is reacting appropriately to same-store sales
and jobless claims. Same-store sales are the first indication
that we've had that the tax rebates are working," said Brian
Gendreau, investment strategist at ING Investment Management in
New York.
"It is a very welcome sign. It means that we are on track
for a pickup in growth," Gendreau.
Technology stocks also reacted strongly to the Labor
Department's unemployment report. Cisco Systems <CSCO.O> rose
2.9 percent to $27.54 and Microsoft Corp <MSFT.O> gained 2.8
percent to $28.30.
European stocks ended lower for a second day in a row after
Trichet left the door open to an interest rate hike as early as
July.
The FTSEurofirst 300 <> index of top European shares
unofficially ended 0.2 percent lower at 1,309.51 points.
"We still don't have much visibility and fears over the
health of banks continue to resurface here and there," said
Bruno Cavalier, economist at Oddo Securities in Paris.
"But market sentiment has improved quite a lot over the
past two months. We thought we were going to hell at that time.
Now it looks more like the purgatory, but we're still far away
from paradise," he said.
The data "support our belief that the economy is much
better than many give it credit for," said Kim Rupert, managing
director of global fixed income analysis with Action Economics
LLC in San Francisco.
Oil's surge reversed most of a nearly $6 slide this week
that was triggered by worries high prices were starting to eat
into global demand.
U.S. crude <CLc1> settled up $5.49, or 4.5 percent, at
$127.79 a barrel -- the biggest percentage gain in more than
two months. London Brent <LCOc1> settled $5.44 higher at
$127.54 a barrel.
Shares in Asia fell, with stocks in Malaysia <>
posting their biggest single-day decline in 12 weeks after the
government lifted oil subsidies.
Japan's Nikkei share average <> finished down 0.65
percent and the MSCI index of Asia-Pacific stocks outside Japan
fell 0.6 percent <.MIAPJ0000PUS>.
(Reporting by Gertrude Chavez-Dreyfuss, Walker Simon and
Richard Leong in New York, Alex Lawler and Jan Harvey in London
and Blaise Robinson in Paris)
(Reporting by Herbert Lash. Editing by Richard Satran)
