* U.S. stocks extends gains, Europe rebounds on oil slide
* Oil slips $6 a barrel on rise in U.S. crude inventories
* Dollar rises as Bernanke discusses currency intervention
(Adds European stock close, fresh prices)
By Herbert Lash
NEW YORK, July 16 (Reuters) - U.S. and European stocks rose
on Wednesday after oil prices fell sharply on news of an
unexpected leap in U.S. crude supplies last week and a big U.S.
bank posted surprisingly strong results, easing investor fears
about the battered financial sector.
Spot gold prices tumbled about 2 percent as crude oil slid
and the dollar extended gains after Federal Reserve Chairman
Ben Bernanke said that under certain conditions currency
intervention may be warranted.
Shares in the beaten-down financial sector surged. The S&P
financial index <.GSPF> rose 6.3 percent, while the KBW Banks
index <.BKX> surged 9.4 percent.
Not all the news was positive. Data showed U.S. consumer
price inflation accelerated to an annual rate of 5 percent in
June -- well above economists' forecasts -- and U.S. government
debt prices fell sharply.
U.S. crude oil futures fell more than 4 percent after a
U.S. government agency reported a surprise uptick in import
levels, causing crude prices to chalk up the biggest two-day
loss in percentage terms since January 2007.
While the two-day drop in the price of oil of almost $15
only brought crude to a three-week low, the fall was enough to
help Wall Street rally more than 1 percent. Equity markets had
slipped entirely into a bear market earlier this week.
An index of top European shares also closed higher, a day
after hitting a three-year closing low.
Stronger-than-expected quarterly results by Wells Fargo
<WFC.N>, the No. 5 U.S. bank, helped turn a sour mood on Wall
Street that has seen banking shares slide to decade lows as the
sector looks for still more capital after record infusions.
Wells Fargo raised its dividend 10 percent despite a 23
percent decline in profit caused by a surge in bad loans, and
its shares jumped 24 percent to $25.42.
Despite the weak economy, Chief Executive John Stumpf said
Wells Fargo was "one of the best positioned in financial
services to growth through this adversity."
The results offered a beacon of hope for investors who have
seen fear of the global credit crisis wreck havoc on the
financial sector. The share price of many financial shares have
lost half or more of their value this year.
Before 1 p.m., the Dow Jones industrial average <> rose
140.77 points, or 1.28 percent, at 11,103.31. The Standard &
Poor's 500 Index <.SPX> added 13.09 points, or 1.08 percent, at
1,228.00. The Nasdaq Composite Index <> gained 39.37
points, or 1.78 percent, at 2,255.08.
OIL DROP, BERNANKE SEND EUROPEAN SHARES HIGHER
European shares turned positive after crude fell and in
response to Bernanke's comments about currency intervention.
The FTSEurofirst 300 <> index of top European shares
closed up 0.53 percent to 1,115.97 points.
Automotive stocks soared as the dollar strengthened against
the euro, with BMW <BMWG.DE> rising 2 percent. Fiat <FIA.MI>
rose 6 percent and Peugeot <PEUP.PA> added 4.6 percent.
Airline shares rose on the drop in crude. Air France-KLM
<AIRF.PA> rallied 7.8 percent, Lufthansa <LHAG.DE> gained 4.8
percent and British Airways <BAY.L> rose 6.9 percent.
The optimism might be short-lived, with some doubting the
longevity of the turnaround that occurred late in the European
session.
"We were oversold earlier and this is a technical rally.
The comments from Bernnake were a big push but in the end
nothing has really changed," said Alpha Trading asset manager
Stefan de Schutter.
BANK OPTIMISM LIFTS DOLLAR
Investors had a mixed reaction to a larger-than-expected
jump in U.S consumer prices for June, the largest rise since
September 2005, given that it increased uncertainty about the
outlook for higher interest rates even as the economy slows.
Bonds prices fell. Inflation erodes the value of
fixed-income investments like government bonds over time,
particularly hurting the value of long-dated bonds.
The benchmark 10-year U.S. Treasury note <US10YT=RR> fell
27/32 to yield 3.9324 percent. The 30-year U.S. Treasury bond
<US30YT=RR> fell 63/32 to yield 4.59 percent.
Optimism over Wells Fargo's earnings helped lift the dollar
against the euro as the bank offered investors a glimpse of
stability in the hard-hit U.S. financial system.
"The dollar is likely to benefit only marginally at this
point from economic data. On the other hand, if banks' earnings
come on the positive side, we may see a stronger dollar," said
Omer Esiner, market analyst at Ruesch International in
Washington.
Further dollar gains came after Bernanke told lawmakers
that currency intervention is "something that should be done
only rarely, but there may be conditions in which markets are
disorderly where some temporary action may be justified."
The dollar rose against major currencies, with the U.S.
Dollar Index <.DXY> up 0.37 percent at 71.969. Against the yen,
the dollar <JPY=> rose 0.08 percent at 104.71.
The euro <EUR=> fell 0.51 percent at $1.5837.
In commodities markets, oil futures fell after U.S.
government data showed U.S. crude oil stocks rose 3 million
barrels last week. Analysts had predicted a fall of 2.1 million
barrels.
U.S. light sweet crude oil <CLc1> fell $4.02 to $134.72 a
barrel.
Spot gold prices <XAU=> fell $13.70 to $962.90 an ounce.
Asian stocks edged lower as investors grew more pessimistic
about the outlook for global growth.
Japan's Nikkei share average <> ended the session
barely changed, after earlier touching a 3-1/2-month low.
The Asia Pacific ex-Japan index <.MSCIAPJ> was largely
unchanged overnight in Asia, but was trading 0.3 percent lower
shortly before 1 p.m. in New York.
(Reporting by Ellis Mnyandu, Richard Valdmanis, Nick Olivari,
Vivianne Rodrigues, John Parry and Richard Leong in New York
and Jane Merriman in London; Writing by Herbert Lash; Editing
by Leslie Adler)
