(Recasts with U.S. markets, changes dateline; previous
LONDON)
* Oil rebounds to near $130 a barrel after sharply falling
* U.S. stocks slip, European shares rise on tech
* Strength in U.S. factories bolsters dollar, hits bonds
By Herbert Lash
NEW YORK, May 28 (Reuters) - Oil rebounded to over $129 a
barrel on Wednesday from a sharp drop in the previous session
and U.S. stocks fell as renewed credit market jitters sent
banking stocks lower and offset a surprisingly sharp gain in
U.S. business investment.
A closely watched proxy for U.S. April business spending
posted the biggest gain since December, knocking U.S. and euro
zone government bond prices down and bolstering the dollar on
views strong growth may cause the Federal Reserve to stop
trimming interest rates.
Demand for the U.S. currency increased early, buoyed by
reports of rising German inflation and after oil slid toward
the day's early session lows of $125.96 a barrel.
But oil subsequently snapped back, helping dampen
enthusiasm for U.S. stocks amid renewed banking jitters after
KeyCorp <KEY.N>, a large Midwestern bank, said mounting loan
losses could cause write-offs to double from the bank's prior
forecast.
Before 1 p.m., the Dow Jones industrial average <> fell
12.86 points, or 0.10 percent, to 12,535.49. The Standard &
Poor's 500 Index <.SPX> was off 2.80 points, or 0.20 percent,
at 1,382.55. The Nasdaq Composite Index <> slipped 9.66
points, or 0.39 percent, to 2,471.58.
In another sign of lingering financial crisis concerns,
American International Group <AIG.N> fell 4.6 percent and
dragged U.S. stocks lower after Citigroup said the insurer may
need more capital even after raising $20 billion last week.
KeyCorp, after an announcement late on Tuesday, plunged 11
percent to $19.44 and AIG fell 4.6 percent to $34.95.
"The KeyCorp news last night showed we are not out of the
woods yet in financials," said Kurt Brunner, portfolio manager
at Swarthmore Group in Philadelphia.
Technology and chemical stocks propelled shares higher in
Europe, helped by the early slide in crude oil prices. In
Britain, the leading FTSE 100 Index <> rose on acquisition
interest in insurance stocks.
Admiral Group <ADML.L> led insurers higher and Vodafone
<VOD.L> rebounded, offsetting weakness in banks and oils.
The pan-European FTSEurofirst 300 index <> closed 0.9
percent higher at 1,326.69 points, snapping a three-day losing
streak.
"The positive sentiment was triggered by declining oil
prices," said Christian Stocker, equity strategist at UniCredit
Global Research.
"The recent dynamic is dying down slightly and this
brightens the sentiment in sectors such as, for example, the
technology sector," Stocker said.
The DJ Stoxx European technology index <.SX8P> gained 2.2
percent, with German software company SAP AG <SAPG.DE> rising
4.8 percent to 34.95 euro.
Benchmark U.S. bond yields climbed to their highest since
the start of the year after U.S. data showing new orders for
durable goods fell a less-than-expected 0.5 percent in April.
The benchmark 10-year U.S. Treasury note <US10YT=RR> fell
22/32 to yield 4.0 percent. The 30-year U.S. Treasury bond
<US30YT=RR> fell 27/32 to yield 4.70 percent.
Non-defense capital orders excluding aircraft rose 4.2
percent, marking the biggest increase since December.
"You strip out defense and aircraft and you had a 4.2
percent pop. It really becomes hard to suggest that we have got
a full-fledged recession here," said T.J. Marta, fixed income
strategist at RBC Capital Markets in New York.
Euro zone 10-year cash yields rose to their highest levels
since the start of 2008.
Oil posted its sharp drop, before rebounding, on signs
Asian demand could start to falter as consumer nations look to
cut subsidies by raising fuel prices.
Growing evidence suggests consumers are struggling to cope
with surging prices after oil peaked at more than $135 a
barrel.
"There are signs that soaring energy prices are now even
starting to cause ripples in the booming Asian economies," said
Edward Meir at MF Global.
U.S. light sweet crude oil <CLc1> rose $1.48 to $130.33 a
barrel, after sinking to lows of $125.96.
The dollar rose against major currencies, with the U.S.
Dollar Index <.DXY> up 0.20 percent at 72.531. Against the yen
<JPY=>, it gained 0.35 percent at 104.61.
The euro <EUR=> fell 0.33 percent to $1.5632.
Spot gold prices <XAU=> fell $4.25 to $900.55.
Asian stocks slid for the sixth day out of seven as
inflation fears and a cloudy U.S. economic outlook left
investors skittish.
Japan's Nikkei share average <> fell 1.3 percent and
is down 10.4 percent so far this year.
MSCI's index of stocks outside Japan <.MIAPJ0000PUS> fell
0.7 percent, dragged down by a 1.3 percent slide in Australia's
stock market <> on losses at resource-related companies.
(Reporting by Kristina Cooke, Vivianne Rodrigues and Chris
Reese in New York, and Atul Prakash, Santosh Menon and Eva
Kuehnen in London; Editing by Dan Grebler)
