(Updates market action)
By Anastasija Johnson
NEW YORK, Feb 7 (Reuters) - U.S. stocks rebounded in choppy
trading on Thursday as takeover talk soothed worries about the
global economy's health, which pushed European shares to their
lowest close in two weeks.
But U.S. stocks' bounce back and a dismal $9 billion
auction of 30-year U.S. government bonds punished safe-haven
U.S. Treasuries, which suffered the worst sell-off in four
years.
The euro dropped broadly and the British pound hit a
two-week low against the dollar as investors anticipated more
interest rate cuts ahead from their respective central banks.
The European Central Bank on Thursday left interest rates
unchanged, but bank President Jean-Claude Trichet later
signaled looser monetary policy ahead. The Bank of England cut
interest rates by one quarter of a percentage point,
disappointing those who expected a larger cut.
Warnings from German chip maker Infineon <IFXGn.DE> of
further losses at its phone chips unit and from network
equipment maker Cisco Systems Inc <CSCO.O> of disappointing
third-quarter revenue growth set the negative tone for the
stock market.
In the morning, U.S. shares looked set for a fourth
straight day of declines, but markets rebounded as suggestions
of mergers and acquisitions drew in buyers, who were looking
for bargains after recent losses.
The airline industry got a boost after The Wall Street
Journal reported a merger of Delta <DAL.N> and Northwest
<NWA.N> could be announced as early as next week.
"The economic numbers indicate we're seeing a slower
economy, but a lot of value buyers are coming in here. There
have been more merger deals announced, which means you have
underlying support in the market," said Anthony Conroy, head
trader for BNY ConvergEx, an affiliate of the Bank of New York,
in New York.
The Dow Jones industrial average <> finished the day up
49.60 points, or 0.38 percent, at 12,247.00, according to
preliminary figures. The Standard & Poor's 500 Index <.SPX>
ended up 10.46 points, or 0.79 percent, at 1,336.91. The Nasdaq
Composite Index <> closed up 14.28 points, or 0.63
percent, at 2,293.03.
The rise in stocks helped weigh on bonds, which are seen as
expensive after an almost nonstop seven-month rally. The price
of the benchmark 10-year U.S. Treasury note <US10YT=RR> fell
42/32, with the yield at 3.76 percent, and the 30-year bond
<US30YT=RR> dropped 3-1/32, with the yield at 4.53 percent.
Contributing to the decline was the auction of 30-year
bonds, which met below-average demand. "It wasn't a very good
auction, and I think it surprised the participants," said Lou
Brien, a strategist with DRW Trading Group in Chicago.
GLOOM IN EUROPE
In the foreign exchange market, the euro has come under
pressure in the past couple of sessions amid growing signs the
economy in the 15-member bloc is faltering.
The ECB's Trichet, speaking at a post-meeting news
conference, said euro zone growth risks were to the downside,
paving the way for lower interest rates and sending the single
currency lower.
"Trichet is basically giving us the green light to sell
some more euros as he talks about downside risks to growth,"
said Steven Butler, director of FX trading at Scotia Capital in
Toronto. "The market now thinks it's a matter of when, not if,
the ECB will be cutting rates."
Reductions in interest rates reduce the yields of assets
deonominated in the currencies affected, making the currency
less attractive.
The euro <EUR=> fell 1.01 percent to $1.4472 while the
pound slid 0.91 percent to $1.9415 <GBP=>..
European stocks also fell. The FTSEurofirst 300 index
<> of top European shares closed 1.9 percent lower.
Europe's benchmark index has lost 14 percent so far in 2008,
dragged lower by fears of a U.S. recession.
In the precious metals market, platinum <XPT=> raced to set
record highs again as supply problems in South Africa generated
strong demand from investors. Platinum rose as high as
$1,850.00 an ounce, gaining more than 20 percent since the
start of the year. Gold <XAU=> rose to $908.80 an ounce.
U.S. light sweet crude oil <CLc1> rose 83 cents, or 0.95
percent, to $87.97 per barrel.
(Additional reporting by Natsuko Waki and Sitaraman Shankar in
London and John Parry, Ellis Mnyandu and Vivianne Rodrigues in
New York; Editing by Jonathan Oatis)
