* Oil falls $5 a barrel to lowest level since early June
* U.S. stocks little changed, pushed by oil and outlooks
* Dollar strengthens on comments by Paulson, Plosser
* Hawkish talk from Federal Reserve official weakens bonds
(Recasts throughout with U.S. market focus, adds byline;
dateline previous LONDON)
By Herbert Lash
NEW YORK, July 22 (Reuters) - Oil tumbled $5 a barrel on
Tuesday, lending support to U.S. equity markets where solid
profits from two Dow components barely offset disappointing
earnings outlooks from technology bellwethers including Apple
<AAPL.O>.
The dollar rallied after a Federal Reserve official
suggested U.S. interest rates may need to rise to stem rising
inflation and the top U.S. Treasury official once again said a
strong currency is in the interest of the United States.
The dollar also was helped after a top official at the
International Monetary Fund said the euro is now overvalued,
while its decline has brought it closer to its medium-term
equilibrium than it has been in a decade. The U.S. Dollar Index
<.DXY> was up 0.89 percent at 72.471. Against the yen, the
dollar <JPY=> rose 0.75 percent at 107.21.
The euro <EUR=> fell 0.93 percent at $1.5781.
U.S. and euro zone government debt prices fell after
Charles Plosser, president of the Philadelphia Federal Reserve
Bank, suggested U.S. interest rates could rise sooner rather
than later to stem rising inflation.
Weaker oil cushioned a fall in European shares that brought
to a halt a four-session winning streak as an outlook from
Vodafone <VOD.L><VOD.N> disappointed.
In the United States, the Nasdaq briefly turned positive as
the broader U.S. stock market added to gains on crude's slide.
The tech-heavy Nasdaq has been struggling with fears of an
economic downturn linked to expensive oil.
"You see crude oil down, and I think that's a stimulus to
the broad stock market. You also see the dollar up," said Tim
Ghriskey, chief investment officer of Solaris Asset Management
in Bedford Hills, New York. He added, "A stronger dollar should
cap oil prices and continue to push them down."
Oil's renewed fall marked a welcome boost for investors
facing disappointing news such as a profit decline that was
steeper than expected at credit card company American Express
<AXP.N> and poor results at Wachovia Corp <WB.N>
A weak forecast at Texas Instruments <TXN.N> also weighed.
Solid results at Caterpillar <CAT.N> and DuPont <DD.N>, and
news that General Electric Co <GE.N> and Abu Dhabi investment
agency Mubadala Development Co said they had agreed to an $8
billion joint venture.
GE shares rose nearly 2 percent at $28.21, while
Caterpillar shares jumped nearly 3 percent to $75.39 and
DuPont's shares rose more than 2 percent to $45.04.
At 1 p.m., U.S. benchmark indexes were mixed. The DowJones
industrial average <> rose 17.02 points, or 0.15 percent,
at 11,484.36. The Standard & Poor's 500 Index <.SPX> was down
1.53 points, or 0.12 percent, at 1,258.47. The Nasdaq Composite
Index <> fell 6.53 points, or 0.29 percent, at 2,273.00.
European indexes were hit by poor U.S. corporate results,
but Vodafone was the strongest negative weight on the
pan-European FTSEurofirst 300 index <>, with its shares
falling about 14 percent.
The world's largest mobile phone operator by revenue cut
its outlook for full-year revenue to near the bottom of a
previous forecast range as consumers delay buying new phones.
The FTSEurofirst 300 index ended down 0.44 percent at
1,165.04 points, having earlier fallen as much as 2 percent.
The index rose about 5 percent in the previous four sessions.
While results from four other large U.S. have managed to
calm fears over balance sheets recently, Wachovia spooked
investors with its results.
Wachovia shares initially dropped more than 10 percent
after it said it would slash its dividend and posted an $8.86
billion second-quarter loss, but rebounded to stand 7 percent
higher at $14.06 when it said it did not plan to sell new
shares to raise capital.
Wachovia's results "were far, far worse than expected and
that seems to have given equities a bit of a knock lower and
the yen a bit of a boost," said Adam Cole, global head of FX
strategy at RBC Capital Markets.
Crude oil fell to a six-week low as a tropical storm
sweeping the Gulf of Mexico was expected to miss most major oil
and gas installations.
Oil last week has posted its biggest weekly price decline
in history, a fall that chopped $17 dollars off a barrel as
dealers focused on mounting U.S. economic troubles and sliding
demand.
U.S. light sweet crude oil <CLc1> fell $4.29 percent to
$126.75 a barrel, after touching a low of $125.63.
Spot gold prices <XAU=> fell $19.30 to $946.00.
Gold eased as the dollar's recovery and weakening oil
prices pulled the precious metal from its earlier highs.
However, losses were limited as investors worried about the
outlook for the U.S. economy were still buying the precious
metal as a safe haven from financial risk.
"Gold is still reacting to ongoing concern over the
economic outlook," said Standard Chartered analyst Daniel
Smith. "People continue to be in gold for its safe haven
status."
The benchmark 10-year U.S. Treasury note <US10YT=RR> fell 15/32 to yield 4.10 percent. The 30-year U.S. Treasury bond
<US30YT=RR> fell 23/32 to yield 4.66 percent.
(Reporting by Ellis Mnyandu, Chris Reese, Wanfeng Zhou in
New York and Peter Graff, Alex Lawler, Jan Harvey, Emelia
Sithole-Matarise in London and Eva Kuehnen in Frankfurt)
(Reporting by Herbert Lash)
