(Adds close of U.S. markets)
* U.S. stocks rise on retail sales despite resurgent oil
* Euro heads for biggest weekly loss vs dollar in 3 years
* Surprisingly strong U.S. retail sales batter bond prices*
By Herbert Lash
NEW YORK, June 12 (Reuters) - U.S. and European stocks
rallied on Thursday as InBev's $46 billion bid for brewer
Anheuser-Busch and a better-than-expected jump in U.S. retail
sales bolstered investor sentiment and helped buoy the dollar.
Equities cut their gains late in the session, however,
after oil futures recovered from a $5 drop to stand slightly
higher and a potential deal between Microsoft and Yahoo fell
apart.
Oil rebounded late in the session when talk of a possible
strike in Nigeria, an OPEC member, stirred fresh supply
concerns.
U.S. Treasury debt prices extended losses with the
benchmark yield reaching its highest level since late December.
Below-average demand in an auction of 10-year Treasury notes
pushed prices lower.
The dollar's rally put the euro on track for its worst week
versus the greenback in three years, hurt by tempered
expectations of euro zone interest rate hikes and a solid U.S.
retail data that bolstered expectations of a U.S. rate hike.
Shares of Yahoo Inc <YHOO.O> sank 10 percent on news of its
shattered talks with Microsoft Corp <MSFT.O>.
A big rise in market interest rates also helped deflate a
rally that had pushed all three U.S. indexes more than 1
percent higher.
"Crude and Yahoo were the clear catalysts," equity
strategist Peter Boockvar of Miller Tabak & Co said after
stocks turned negative late in the session.
"Higher interest rates in an over-leveraged economy is never
a good combination," Boockvar said.
Stronger that expected U.S. retail sales figures for May
bolstered the dollar but raised the inflation flag among bond
investors as cash from the government's recession-fighting
campaign hit American checkout counters.
Oil prices rose, with U.S. crude <CLc1> settling up 36
cents at $136.74 a barrel after a $5 surge on Wednesday. London
Brent crude <LCOc1> gained $1.07 to settle at $136.09.
Government debt prices fell after the rise in the retailing
data revived bond investors' fears of inflation. A Federal
Reserve official's warning about rising consumer prices also
heightened concern that U.S. interest rates will be hiked.
The benchmark 10-year U.S. Treasury note <US10YT=RR> fell
more than 1 point to yield at 4.23 percent. The 30-year U.S.
Treasury bond <US30YT=RR> also fell more than 1 point to yield
at 4.77 percent.
The expectations of higher rates fueled demand for dollars
and pushed down other currencies, putting the euro on track for
its worst week against the U.S. currency in three years.
The dollar rose against major currencies, with the U.S.
Dollar Index <.DXY> up 0.85 percent at 73.869. Against the yen,
the dollar <JPY=> rose 1.05 percent at 107.94.
The euro <EUR=> fell 0.84 percent at $1.5422. "The
retail sales number told us that maybe the Fed has got it right
here, the economy is not doing as poorly as we thought," said
Frank Lesh, an analyst and broker at FuturePath Trading LLC in
Chicago. "Some of those rebate checks are getting spent."
The financial sector led the advance after news that
investment bank Lehman Brothers <LEH.N> replaced both its chief
financial officer and chief operating officer. The S&P
financial sector index <.GSPF> rose 2.2 percent, but Lehman
shares fell 4.4 percent to $22.70 in heavy trading.
Caterpillar<CAT.N>, which rose 2 percent and plane maker
Boeing's <BA.N> 1.1 percent rise, were among the biggest U.S.
gainers.
The Dow Jones industrial average <> rose 57.81 points,
or 0.48 percent, at 12,141.58. The Standard & Poor's 500 Index
<.SPX> gained 4.38 points, or 0.33 percent, at 1,339.87. The
Nasdaq Composite Index <> added 10.34 points, or 0.43
percent, at 2,404.35.
European shares also rallied, snapping six days of
declines, as banks and mining stocks rose.
"We're up because there has been no bad news, we've had a
bit of respite from the ongoing doom and gloom," said IG Index
chief market analyst David Jones.
"At the moment it smells like an oversold rally so (the
market) was going to come back at one point after the plunges
we've seen this week, but I don't think anyone is too convinced
as of yet."
The FTSEurofirst 300 index <> of top European shares
rose 0.93 percent to close at 1,261.02 points.
InBev <INTB.BR> jumped 6.2 percent to 50.21, and Anheuser
Busch rose 5.2 percent on the Belgian brewer's unsolicited
bid.
Japan's Nikkei share average <> fell 2 percent, while
the MSCI index of Asia-Pacific equities excluding Japan
<.MIAPJ0000PUS> was off 2.4 percent to the lowest since March
25.
(Reporting by Ellis Mnyandu, Nick Olivari, John Parry, Gene
Ramos and Carole Vaporean in New York and Ian Chua, Kirsten
Donovan and Amanda Cooper in London)
(Reporting by Herbert Lash. Editing by Richard Satran)
(herb.lash@thomsonreuters.com; +1 646 223 6019; Reuters
Messaging:
herb.lash.reuters.com@reuters.net. Editing by Richard Satran)
