* Wall Street posts biggest one-day advance since April 1
* U.S. banking shares post biggest one-day rise since 1993
* Oil falls sharply on rise in U.S. crude inventories
* Dollar rises as Bernanke discusses currency intervention
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, July 16 (Reuters) - U.S. stocks jumped more than
2 percent on Wednesday after strong results at Wells Fargo
fueled a powerful rally in the battered banking sector and an
unexpected leap in U.S. crude supplies led oil prices to fally
sharply.
Equity markets in Europe also ended higher as a weaker euro
underpinned automotive stocks and Wells Fargo <WFC.N> lifted
banks that also have been slammed by the global credit crunch.
Spot gold prices tumbled about 2 percent as crude oil slid
for a second day, and the dollar extended gains after Federal
Reserve Chairman Ben Bernanke said that under certain
conditions currency intervention may be warranted. Minutes from
the Fed's June meeting showed policy-makers believed the next
interest rate move could be an increase, which also lifted the
dollar.
Driving the stock market rally was a surge in banks, which
have suffered a terrible year, as Wells Fargo's results eased
investor fears about mortgage losses. The sector has absorbed
more than $400 billion of write-downs and credit losses since
the global credit crisis began last summer.
Wall Street's three major indexes posted their biggest
one-day percentage gains since April 1.
The KBW banking index <.BKX> jumped more than 17 percent in
the biggest single-day gain since at least 1993. The largest
previous spike was 9.2 percent on March 16, 2000, -- the
height, and turning point, of the 1990s boom in technology
shares.
"What's taking place today is a market recovery driven by
financials and a continued drop in oil prices," said Subodh
Kumar, chief investment strategist at Subodh Kumar & Associates
in Toronto.
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.
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 32.8 percent to $27.23.
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.
The Nasdaq climbed more than 3 percent. Altera Corp
<ALTR.O> jumped 12.1 percent after the chipmaker said on
Tuesday second-quarter revenue rose more than analysts
expected.
The Dow Jones industrial average <> rose 276.74 points,
or 2.52 percent, to 11,239.28. The Standard & Poor's 500 Index
<.SPX> gained 30.43 points, or 2.50 percent, to 1,245.34. The
Nasdaq Composite Index <> added 69.14 points, or 3.12
percent, at 2,284.85.
U.S. crude oil futures fell 3 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.
U.S. crude futures <CLc1> fell $4.14 to settle at $134.60 a
barrel, adding to Tuesday's drop of $6.44 and bringing oil
close to $13 below last week's all-time peak. London Brent
crude <LCOc1> fell $2.56 to $136.19 a barrel.
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
34/32 to yield 3.96 percent. The 30-year U.S. Treasury bond
<US30YT=RR> fell 69/32 to yield 4.60 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 0.51 percent at 72.071. Against the yen,
the dollar <JPY=> rose 0.50 percent at 105.15.
The euro <EUR=> fell 0.63 percent at $1.5817.
U.S. gold futures ended sharply lower in a wide trading
range as energy's sharp drop hurt the inflation appeal of
bullion.
August futures <GCQ8> settled down $16 at $962.70 an ounce
in New York.
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)
