(Recasts with U.S. markets, changes dateline; previous
LONDON)
* Oil prices fall, bringing this week's decline to $10
* Dollar rallies after Bernanke's remarks calm markets
* U.S. stocks rebound as banking worries ease
By Herbert Lash
NEW YORK, July 8 (Reuters) - Stocks and the dollar shrugged
off recent weakness from credit concerns and moved higher on
Tuesday as Federal Reserve Chairman Ben Bernanke reassured
investors about liquidity for banking system needs and oil took
another inflation-dampening tumble.
Signs that investors still fear the impact of a lingering
credit crunch could be seen in Europe, where stocks fell and
euro zone government bonds advanced amid worries about further
potential write-downs by banks.
Trading started on a weaker note on Wall Street as a
sharper-than-expected decline in pending U.S. home sales in May
signaled more trouble for the beleaguered housing market and
supported a rise in fixed-income markets.
But Bernanke bolstered the market with a speech saying that
the U.S. central bank may extend emergency lending facilities
for big Wall Street banks past year-end as it seeks to restore
financial market stability.
"What Bernanke's saying is helping Wall Street, and that's
helping the dollar," said Boris Schlossberg, senior currency
strategist at DailyFX.com in New York. "Everybody thinks the
Fed's No. 1 mandate is to fight inflation, but it's actually to
make sure the banks are solid.
"What they're trying to do is avoid a panic on Wall Street,
and in the near term that's dollar-positive," he added.
Bernanke's comments stopped a sell-off in financial stocks
on Monday when Lehman Brothers estimated a proposed accounting
rule could force Fannie Mae <FNM.N> and Freddie Mac <FRE.N>
billions in fresh capital. Some thought the market reaction was
overdone since Lehman said itself said it doubted an accounting
change detrimental to the two largest U.S. mortgage lenders
would be enacted.
The S&P financial index <.GSPF> rose more than 2 percent.
Also lifting U.S. shares was a rally in defensive stocks
such as pharmaceutical shares, with the American Stock Exchange
<.DRG> index of 14 big Pharma companies up 2.7 percent.
Before 1 p.m., the Dow Jones industrial average <> rose
47.54 points, or 0.42 percent, at 11,279.50. The Standard &
Poor's 500 Index <.SPX> was up 4.12 points, or 0.33 percent, at
1,256.43. The Nasdaq Composite Index <> was up 17.26
points, or 0.77 percent, at 2,260.58.
In Europe, fresh concern about the outlook for the banking
sector drove shares down. A steep drop in crude prices and a
rally in safe-haven sectors such as drugmakers helped stem the
slide.
Some analysts believe there may be some respite to the
selling in the European equity market, which has fallen by
about 30 percent since last July's multi-year highs.
"We're probably close to a bottom, but not the bottom.
We're so bombed out, so oversold that we could gradually work
our way slightly higher. This is not a good moment to sell,"
said Philippe Gijsels, a European equities strategist at Fortis
Bank in Brussels.
The FTSEurofirst 300 index <> of top European shares
ended the day down 1.47 percent at 1,161.38 points, but well
off session lows.
Oil tumbled to as low as $136 a barrel as the dollar gained
and concern eased over an Atlantic hurricane.
U.S. light sweet crude oil <CLc1> fell $4.77 to $136.60 per
barrel.
Spot gold prices <XAU=> fell $3.20 to $922.25.
Hurricane Bertha became a "major" hurricane on Monday, but
none of the computer models used to track storms indicated it
would head for the Gulf, the center of the U.S. oil and gas
industry.
Gold pulled further off a 2-1/2 month high set late last
week as crude oil prices fell and the dollar's advance
undermined both commodities.
The dollar rebounded on Bernanke's comments.
The dollar rose against major currencies, with the U.S.
Dollar Index <.DXY> up 0.42 percent at 73.004. Against the yen,
the dollar <JPY=> was up 0.22 percent at 107.38.
The euro <EUR=> fell 0.41 percent at $1.5657.
Asian stocks fell sharply overnight on jitters caused by
the big declines in Fannie Mae and Freddie Mac.
Japan's Nikkei share average <> fell 2.45 percent to a
three-month closing low.
Shares of companies in the Asia-Pacific region <.MSCIAPJ>
were down 2.4 percent, according to an MSCI index. The
all-countries world index <.MIWD0000PUS> slipped to the lowest
since January 22.
(Reporting by Ellen Freilich, Gertrude Chavez-Dreyfuss, Nick
Olivari and Carole Vaporean in New York and Amanda Cooper and
Ikuko Kao in London)
(Reporting by Herbert Lash. Editing by Richard Satran)
