* Oil soars past $65 a barrel on OPEC, U.S. inventory drop
* Yen tumbles on higher demand for overseas assets
* U.S. government debt rallies back from sell off
* U.S. stocks rise, lifted by rising energy shares
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, May 28 (Reuters) - U.S. stocks rose as oil prices
surged over $65 a barrel on Thursday on a drawdown in
inventories, while U.S. Treasury debt recovered some ground a
day after worries about a record $1.75 trillion budget deficit
sparked a sharp sell-off.
The Japanese yen fell broadly after the spike in U.S. bond
yields and surprisingly strong U.S. durable goods orders data
suggested the recession may be easing, attracting investors in
the safe-haven Japanese currency back into riskier assets.
The U.S. dollar also remained under pressure against the
euro as the economic data reduced the need to hold it as a safe
haven also, and as worries about a soaring U.S. fiscal deficit
bolstered hopes that the Federal Reserve would step up debt
purchases.
U.S. government debt prices jumped in a volatile session,
with 30-year long bonds rising more than two full points as
traders welcomed the end of $101 billion in new issuance
auctions that had reinforced worries about the growing U.S.
debt burden.
Crude oil prices jumped to a fresh six-month high after the
Organization of Petroleum Exporting Countries (OPEC) decided to
keep output unchanged. U.S. government data also showed a steep
drop in U.S. crude inventories, suggesting demand may be rising
again as the summer driving season begins..
"Gasoline demand over the Memorial Day weekend is a
critical point in judging the health of the U.S. economy," said
analyst Phil Flynn at Alaron Trading in Chicago. "I don't think
the increased demand over the holiday was a fluke."
U.S. crude oil for July delivery <CLc1> settled up $1.63 to
$65.08 a barrel after hitting an intraday high of $65.44. It
was the highest settlement since Nov. 5.
London Brent crude <LCOc1> rose $1.89 to settle at $64.39.
OPEC Secretary-General Abudullah al-Badri told Reuters
Financial Television that U.S. demand was showing signs of
recovering after the financial crisis battered global
consumption and sent oil prices tumbling from near the record
of $150 of last July.[]
OPEC ministers meeting in Vienna opted to leave target
output levels unchanged as they bet a strengthening economy and
signs of rising demand would support prices. []
U.S. stocks climbed as the jump in crude oil prices drove
up energy sector shares and as data on U.S. durable goods
orders signaled the economy was stabilizing.
Chevron Corp <CVX.N> and Exxon Mobil Corp <XOM.N> were top
gainers on the blue-chip Dow.
"We had the OPEC meeting today plus we had inventory
numbers and both were favorable for oil, and that's helping
that whole sector," said Owen Fitzpatrick, head of U.S. Equity
Group at Deutsche Bank Private Wealth Management in New York.
The Dow Jones industrial average <> closed down 0.16
points, or 0.00 percent, at 8,299.86. The Standard & Poor's 500
Index <.SPX> added 3.23 points, or 0.36 percent, at 896.29. The
Nasdaq Composite Index <> fell 2.23 points, or 0.13
percent, at 1,728.85.
Investors were inclined to think that a bout of selling in
the U.S. bond market -- the worst four-day downturn since
October -- was sufficient for now.
"Yesterday had the smell of an overshoot," said Alan
Ruskin, chief market strategist at RBS Greenwich.
Ruskin and others cited speculation that the recent
pullback in Treasury yields to six-month highs might soon push
the Federal Reserve to step up its purchases of government,
agency and mortgage bonds.
Benchmark 10-year U.S. Treasury notes <US10YT=RR> bounced
24/32 in price to yield 3.64 percent. Yields were 10 basis
points lower on the session, but still up more than a half
percentage point over the past two weeks.
The 30-year U.S. Treasury bond <US30YT=RR> rose 30/32 in
price to yield 4.59 percent.
The U.S. dollar fell against a basket of major currencies,
with the Dollar Index <.DXY> down 0.26 percent at 80.55.
Against the yen, the dollar <JPY=> rose 1.56 percent at 96.79
The euro <EUR=> rose 0.72 percent at $1.3933.
"There's a clear move out of the yen but the buying is not
only concentrated in U.S. dollars," said Win Thin, currency
strategist at Brown Brothers Harriman in New York. "Other
currencies such as the Australian dollar and some of the large
emerging markets are being favored as well."
U.S. gold futures ended higher, the August <GCQ9> contract
settling up $8 at $963.20 an ounce in New York.
Earlier in Europe regional shares fell in volatile trading,
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.
(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)
