* Yen tumbles on higher demand for overseas assets
* U.S., euro zone bonds steadier after sell off
* Global stocks slip, but energy shares rise on oil
* Oil climbs near $65 on U.S.inventory data, OPEC
By Herbert Lash
NEW YORK, May 28 (Reuters) - Oil prices jumped to almost
$65 a barrel on Thursday, lifted by bullish U.S. inventory
data, while U.S. Treasury bonds recovered some ground a day
after worries about a record $1.75 trillion budget deficit
sparked a sell-off.
The euro rose against the U.S. dollar and the yen fell
broadly as better-than-expected U.S. manufacturing data and a
slide in jobless claims lured investors in the Japanse currency
into overseas assets.
European shares fell and many U.S. stocks trended lower
after April new home sales data and a downward revision to
March's sales pointed to more weakness in the slumping U.S.
housing market.
Bank-to-bank three-month dollar borrowing costs fell, but
money markets remained strained and fears about counterparty
risk were not far beneath the surface.
U.S. crude stocks fell more than expected last week as
refiners ramped up operations, while gasoline inventories
dropped for the fifth week, the Energy Information
Administration said in weekly data released on Thursday.
Commercial crude inventories fell 5.4 million barrels in
the week ended May 22, the EIA said, dwarfing the
700,000-barrel decline analysts had forecast in a Reuters poll.
[]
"What we are seeing here is the demand side start to
improve," said analyst Phil Flynn at Alaron Trading in
Chicago.
"Gasoline demand over the Memorial Day weekend is a
critical point in judging the health of the U.S. economy. I
don't think the increased demand over the holiday was a
fluke."
U.S. light sweet crude oil <CLc1> rose $1.18 to $64.63 a
barrel, after touching a session high of $64.99.
U.S. government debt prices recovered, with benchmark
10-year Treasuries rising a full point and 30-year long bonds
gaining more than two points early in the session.
The 10-year U.S. Treasury note <US10YT=RR> was up 8/32 in
price to yield 3.71 percent. The 2-year U.S. Treasury note
<US2YT=RR> fell 1/32 in price to yield 0.99 percent.
Analysts questioned whether Wednesday's sell-off reflected
market fundamentals, particularly since much of it came on
mortgage-related trades.
"The move has been so extreme," said James De Masi, chief
fixed income strategist at Stifel Nicolaus & Co. Inc in
Baltimore. "The move became exaggerated yesterday due to
mortgage-related selling, on top of worries about supply and
its inflation implication."
Euro zone government bonds retreated in the aftermath of
the sharp slide in U.S. Treasuries.
"The talk was that it was mortgage hedging activity that
really drove the sell-off late last night in Treasuries and
that's a very specific factor to that market," said Sean
Maloney, interest rate strategist at Nomura in London.
Rising oil prices boosted energy shares, overshadowing
mixed U.S. economic data.
Exxon Mobil Corp <XOM.N> was one of the top boosts to the
blue-chip Dow Jones industrial average, rising 0.89 percent.
At 1 p.m., the Dow Jones industrial average <> was down
0.16 points, or 0.00 percent, at 8,299.86. The Standard &
Poor's 500 Index <.SPX> was up 3.23 points, or 0.36 percent, at
896.29. The Nasdaq Composite Index <> was down 2.23
points, or 0.13 percent, at 1,728.85.
Shares of General Motors Corp <GM.N> rose after it said
major bondholders had agreed to a debt-for-equity exchange,
helping to counter uncertainty of the spillover effects onto
the broader economy of a contentious bankruptcy filing.
European shares fell in volatile trading on Thursday, led
by financials such as Dutch ING Group <ING.AS> and Germany's
Deutsche Bank <DBKGn.DE>.
The FTSEurofirst 300 <> index of top European shares
closed 1.2 percent lower at 860.21 points.
The dollar fell against a basket of major currencies, with
the U.S. Dollar Index <.DXY> down 0.26 percent at 80.55.
Against the yen, the dollar <JPY=> was up 1.56 percent at
96.79.
The euro <EUR=> was up 0.72 percent at $1.3933.
The MSCI index of Asian stocks outside Japan
<.MIAPJ0000PUS> had shed 0.3 percent.
Japan's Nikkei average <> closed 0.1 percent higher,
supported by hopes that the Japanese economy may have seen its
worst phase and is headed for a recovery.
(To read Reuters Global Investing Blog click on
http://blogs.reuters.com/globalinvesting; for the MacroScope
Blog click on http://blogs.reuters.com/macroscope; for Hedge
Fund Blog click on http://blogs.reuters.com/hedgehub)
(Reporting by Chuck Mikolajczak, Vivianne Rodrigues, Burton
Frierson and John Parry in New York; George Matlock, Emelia
Sithole-Matarise and Chris Baldwin in London; writing by
Herbert Lash)
