* U.S. stocks slip as drugmakers slide, offsets bank rally
* Dollar slips on view worst of credit crisis has passed
* Oil rises as Tropical Storm sweeps into Gulf of Mexico.
* Government debt rises on renewed flight to safety
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, July 21 (Reuters) - U.S. stocks fell on Monday as
unfavorable data on a cholesterol drug sold by Schering Plough
and Merck offset strong results at Bank of America, while crude
rose as a storm swept into the oil-producing Gulf of Mexico.
U.S. and euro zone government bonds sagged after Bank of
America's results took away a flight to safety bid that has
been the bond market's main driver during the credit crisis.
But U.S. Treasuries prices later rebounded in renewed
safe-haven buying.
The dollar fell as fears that turmoil in the U.S. financial
sector persist, and could create further havoc in the
struggling U.S economy.
"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.
Bank of America <BAC.N> became the latest U.S. bank to lift
equity markets by reporting better-than-expected results.
European and U.S. stocks initially rose, although Wall Street
gave up on its rally as pharmaceutical stocks tumbled.
Shares of Bank of America rose as much as 12 percent after
improved results from investment banking and trading offset a
surge in bad loans. The results lifted shares in Europe and led
to a rally in the beaten-down U.S. banking sector.
Shares closed up 3.75 percent at $28.52.
It was 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>.
Vytorin, a cholesterol fighting drug sold by Merck & Co Inc
<MRK.N> and Schering-Plough Corp <SGP.N>, failed to meet the
main goal of improving heart outcomes in a closely watched
study, according to data released from a study.
Schering fell almost 12 pcent and Merck fell 6.2 percent.
The Dow Jones industrial average <> fell 29.23 points, or 0.25 percent, at 11,467.34. The Standard & Poor's 500 Index
<.SPX> fell 0.68 points, or 0.05 percent, at 1,260.00. The
Nasdaq Composite Index <> fell 3.25 points, or 0.14
percent, at 2,279.53.
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.
The U.S. National Hurricane Center warned the storm could
reach hurricane strength on Tuesday, while the U.S. Energy
Information Administration said on its current path, Dolly was
likely to miss major oil producing areas but could threaten
some coastal refineries later in the week. []
U.S. crude <CLc1> settled up $2.16 at $131.04 a barrel
after concerns about U.S. demand knocked prices from record
highs over $147 a barrel last week. London Brent crude <LCOc1>
rose $2.42 to settle at $132.61 a barrel.
U.S. gold futures ended higher as a lower dollar against
the euro and gains in crude oil prompted buying of bullion as
an alternative investment.
Gold for August <GCQ8> delivery settled up $5.70 at $963.70
an ounce in New York.
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> rose
4/32 to yield at 4.0691 percent. The 30-year U.S. Treasury
bond<US30YT=RR> added 3/32 to yield 4.64 percent.
The dollar fell against major currencies, with the U.S.
Dollar Index <.DXY> down 0.33 percent at 71.966. Against the
yen, the dollar <JPY=> fell 0.22 percent at 106.72.
The euro <EUR=> rose 0.33 percent at $1.5898.
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)
