* Global stocks rally for second day on JPMorgan's results
* Crude slips as poor U.S. economy seen slowing oil demand
* Dollar dips as ECB policy-maker raises inflation mandate
* U.S. debt pares losses after weak economic reading.
(Recasts throughout with U.S. markets, adds byline; dateline
previous LONDON)
By Herbert Lash
NEW YORK, July 17 (Reuters) - Global stocks climbed for a
second day on Thursday as strong earnings at JPMorgan Chase
lifted banking shares and a decline in crude oil overshadowed
weak economic data and recent fears of rising inflation.
Stocks rallied after JP Morgan <JPM.N> became the second
U.S. bank in as many days to spur a rally in the beaten-down
banking sector after it posted stronger-than-expected results.
It followed Wells Fargo's <WFC.N> favorably viewed results on
Wednesday.
A solid outlook from consumer technology leader Nokia in
Europe and a third straight day of falling oil prices also
helped boost optimism but many investors questioned the depth
of the market's rally.
The dollar slid against the euro after a European Central
Bank policy-maker emphasized the bank's inflation-fighting
mandate, a reminder that higher interest rates may lay ahead.
U.S. Treasury debt prices pared some losses after a
weaker-than-expected reading of business activity in the
mid-Atlantic, reflecting a weakening U.S. economy and the
strain of rising costs.
The Dow and S&P 500 pared gains and the Nasdaq briefly
turned negative following the report. U.S. stocks stayed higher
but investors said quarterly results from Merrill Lynch, IBM,
Microsoft, Google and others could change the tone.
"You had a terrific rally yesterday based on the short
covering and optimism in the financials," said Jim Awad,
chairman of W.P. Stewart Asset Management in New York.
"You've got a stand off so far today, and that stand-off
will continue and you'll recalibrate based on tonight's and
tomorrow morning's earnings announcements."
Before 1 p.m., the Dow Jones industrial average <> was
up 43.07 points, or 0.38 percent, at 11,282.35. The Standard &
Poor's 500 Index <.SPX> was up 0.91 points, or 0.07 percent, at
1,246.27. The Nasdaq Composite Index <> was down 1.90
points, or 0.08 percent, at 2,282.95.
A more than 9 percent jump in shares of JPMorgan made the
bank the biggest contributor to gains in the Dow and S&P 500.
Fannie Mae <FNM.N> and Freddie Mac <FRE.N> surged, adding
to sharp jumps a day earlier after Freddie completed its second
successful debt sale this week. The $3 billion note sale helped
calm fears about the strength of the two housing finance
companies after initial skepticism over a U.S. rescue plan.
Fannie rose about 15 percent, and Freddie rose almost 17
percent.
In Europe, stocks staged a sharp rally with an index of the
region's top 300 companies rising as much as 3.47 percent.
Banks rebounded from early in the session with the DJ Stoxx
European banks index <.SX7P> soaring 5.4 percent. UBS <UBSN.VX>
rose 7.9 percent, Deutsche Bank <DBKGn.DE> gained 6.9 percent
and BNP Paribas <BNPP.PA> rose 6.1 percent.
Finnish handset maker Nokia raised its outlook, although
analysts said the rest of the company's earnings report showed
a mixed picture.
The FTSEurofirst 300 index <> closed 2.7 percent
higher at 1,145.87 points, after brushing an intra-day high of
1,154.72. The day's advance was the largest since April 1.
Whether the rally marked a turnaround was unclear.
"The banks have fallen so much recently that you have to
wonder whether they are overdone," strategist Bernard McAlinden
at NCB Stockbrokers in Dublin said.
U.S. banks over the past 30 to 35 years have never been
much lower, he said. "This may be a very advanced long-term
clue that the worst may be over."
U.S. Treasuries prices fell as news that U.S. housing
starts jumped in June and jobless claims rose less than
expected in the latest week boosted prospects for a Federal
Reserve rate hike by year-end.
The benchmark 10-year U.S. Treasury note <US10YT=RR> fell
12/32 to yield 3.98 percent. The 30-year U.S. Treasury bond
<US30YT=RR> fell 9/32 to yield 4.60 percent.
The dollar traded lower.
A slower economy will not reduce inflation and if no action
is taken, like the 1970s, the euro zone would experience
stagflation, said ECB Governing Council Member Nout Wellink.
The euro was also bolstered after a newspaper article again
raised the possibility of an ECB reserve diversification out of
the dollar.
The dollar fell against major currencies, with the U.S.
Dollar Index <.DXY> up 0.14 percent at 71.931. Against the yen,
the dollar <JPY=> was up 0.72 percent at 105.80.
The euro <EUR=> fell 0.32 percent at $1.5874.
"The market went quiet on ECB tightening after their last
press conference ... and there's a risk over the coming months
that the case builds for further tightening from the ECB," said
Chris Turner, head of FX strategy at ING in London.
Extended its recent drop on signs of weakening demand, U.S.
light sweet crude oil <CLc1> fell 90 cents to $133.70 per
barrel.
Spot gold prices <XAU=> rose $16.20 to $975.30.
"Gold's mainly been tracking oil and the dollar today,
having risen largely on banking concerns over the past week,"
said Standard Chartered trader Tony Dobra.
Asian stocks rebounded on Thursday, boosted by declining
oil prices and the biggest surge in U.S. bank shares in 16
years. Japan's Nikkei share average <> rose 1 percent in
its biggest single-day rise in a month.
Shares in the Asia-Pacific region <.MIAPJ0000PUS> outside
Japan climbed 2.2 percent for the largest daily gain since
April. On Wednesday, the index fell to its lowest since March
2007.
(Reporting by Ellis Mnyandu, Kristina Cooke, Ellen Freilich,
Nick Olivari, Gertrude Chavez-Dreyfuss in New York and
Patrizia Kokot, Santosh Menon and David Sheppard in London)
(Reporting by Herbert Lash. Editing by Richard Satran)
