* U.S. stocks slip as drugmakers slide, offsets bank rally
* Dollar slips on view worst of credit crisis has passed
* Oil prices rise but stay below $130 a barrel level
* Government debt eases as flight to safety dissipates
(Recasts throughout with U.S. market focus, adds byline;
dateline previous LONDON)
By Herbert Lash
NEW YORK, July 21 (Reuters) - Bank of America became the
latest U.S. bank to lift equity markets by reporting
better-than-expected results on Monday, helping lift European
and initially U.S. stocks, although Wall Street gave up on its
rally as drug stocks tumbled and the dollar eased.
Oil gave back early-session gains of almost $3 as worry
over Iran and a storm in the Gulf of Mexico failed to sustain a
rebound from last week's slide in crude prices, the biggest on
record.
Shares of Bank of America <BAC.N> gained 10 percent after
improved results from investment banking and trading offset a
surge in bad loans, helping lift shares in Europe and lead to a
rally in the beaten-down U.S. banking sector.
Bank of America became the fourth of the five largest U.S.
banks to top quarterly earnings forecasts, joining Citigroup
Inc <C.N>, JPMorgan Chase & Co <JPM.N> and Wells Fargo & Co
<WFC.N>.
The results have helped bolster investor confidence in
banks after it sagged to one of the lowest levels ever on the
series financial crisis sparked by a record wave of mortgage
loan failures in the United States.
U.S. and euro zone government bonds sagged as equities
rallied after Bank of America's results, taking away a flight
to safety bid that has a bond driver during the credit crisis.
But the dollar slipped and lost some of its recent momentum
as Bank of America failed to persuade currency investors that
the worst for the U.S. financial sector is over.
"There was a lack of follow-through buying in the dollar
after the Bank of America results," said Steven Butler,
director of foreign exchange trading at Scotia Capital in
Toronto.
"The bank's results were less worse but concerns in the
financial sector remain," he said.
U.S. stocks were little changed as a pending study of a
drug trial weighed on drugmakers and offset a rally in bank
stocks sparked by Bank of America's earnings.
The KBW bank index <.KBW> rose more than 3 percent, the
fourth straight day of advances after last week hitting an
all-time low. It is up almost 40 percent since that trough.
"The financials are acting as if most of the bad news is
more than fully discounted," said Al Goldman, chief market
strategist at Wachovia Securities in St. Louis.
Merck and Co <MRK.N> and Schering-Plough <SGP.N> fell after
they delayed the release of their quarterly earnings so
investors could first learn the outcome of a study of their
Vytorin cholesterol fighter. The news took other drug shares
lower as well.
Before 1 p.m., the Dow Jones industrial average <> was
down 28.33 points, or 0.25 percent, at 11,468.24. The Standard
& Poor's 500 Index <.SPX> was down 0.19 points, or 0.02
percent, at 1,260.49. The Nasdaq Composite Index <> was
down 6.38 points, or 0.28 percent, at 2,276.40.
Bank of America's results lifted European shares, while
declines in the pharmaceutical sector also offset some of the
gains.
Roche <ROG.VX> fell 4.8 percent and was the heaviest drag
on the pan-European FTSEurofirst 300 index <> after it
offered to acquire all the outstanding shares in its U.S.
partner, Genentech Inc <DNA.N>, for $43.7 billion.
Genentech's shares rose 13.1 percent in New York.
The pan-European FTSEurofirst 300 index closed 0.5 percent
higher at 1,169.94 points.
The DJStoxx European banks index <.SX7P> rose 0.9 percent
with ING <ING.AS> up 3.5 percent, Royal Bank of Scotland
<RBS.L> up 1.6 percent and UBS <UBSN.VX> gaining 2.2 percent.
Adding to broader gains were firmer mining shares as the
DJStoxx European Basic Resources index <.SXPP> rose 2 percent
with Rio Tinto <RIO.L> up 3 percent, Kazakhmys <KAZ.L> rising
4.6 percent and BHP Billiton <BLT.L> adding 2.9 percent.
A stalemate over talks to resolve Iran's nuclear stand-off
with the West and the tropical storm in the Gulf of Mexico both
helped halt the sell-off. But full recovery was not in sight.
U.S. light sweet crude oil <CLc1> rose $1.42 to $130.30 a
barrel.
Spot gold prices <XAU=> rose $9.90 to $964.20 an ounce.
U.S. Treasury debt prices eased on Bank of America's
results as they bolstered the view that the financial sector is
not on the brink of a collapse.
"It looks like the financial meltdown will have to wait for
another day," said Andrew Brenner, senior vice president at MF
Global in New York.
The benchmark 10-year U.S. Treasury note <US10YT=RR> fell
2/32 to yield 4.10 percent. The 30-year U.S. Treasury bond
<US30YT=RR> fell 6/32 to yield at 4.66 percent.
The dollar fell against major currencies, with the U.S.
Dollar Index <.DXY> down 0.22 percent at 72.046.Against the
yen, the dollar <JPY=> was down 0.15 percent at 106.79.
The euro <EUR=> was up 0.18 percent at $1.5874.
Overnight in Asia, stocks rose more than 3 percent -- the
most in four months -- helped by last week's results from
Citigroup and growing optimism about that banking sector.
The MSCI index of Asia-Pacific shares outside of Japan
<.MIAPJ0000PUS> rose 3.1 percent on the day, the biggest
single-day gain since March 25.
Markets in Japan were closed for a public holiday, thinning
liquidity in the region.
(Reporting by Ellis Mnyandu, Chris Reese, Wanfeng Zhou in New
York and Peter Graff, Jan Harvey and Emelia Sithole-Matarise in
London and Eva Kuehnen in Frankfurt.
(Writing by Herbert Lash. Editing by Richard Satran)
