(Adds close of U.S. markets)
* Dollar rallies after Bernanke's remarks calm investors
* U.S. stocks rebound after Fannie, Freddie capital scare
* Oil prices tumble, pushing this week's decline to $10
* Long-dated U.S. Treasuries rise as inflation fears eases
By Herbert Lash
NEW YORK, July 8 (Reuters) - Wall Street stocks and the
dollar moved sharply higher on Tuesday after putting aside
recent credit and inflation worries worries on reassuring
comments from Federal Reserve Chairman Ben Bernanke and a sharp
drop in commodities prices on futures markets.
Investors took comfort as crude tumbled, bringing the
decline in oil prices so far this week to about $10. The rout
in energy carried into metals and agricultural prices, with
selling spurred along by a surging dollar. A rise in the U.S.
currency means less dollars are required to purchase the
commodities.
The dollar's rebound came broadly, as the U.S. unit was
lifted by Bernanke's statement that the U.S. central bank is
willing to keep its emergency lending facility for major Wall
Street firms open beyond the end of the year.
Bernanke's comments also cushioned a decline in European
stocks which were rocked after a Lehman Brothers report on two
key mortgage finance companies on Monday roiled markets.
Lehman said a pending accounting change could force Fannie Mae
<FNM.N> and Freddie Mac <FRE.N> to raise a combined $75 billion
in capital.
Long-dated U.S. government debt rose as the two-day slide
in oil prices eased inflation fears.
The government regulator for Fannie and Freddie also sought
to appease investor fears of the mortgage lenders' capital
needs, saying that a proposed accounting change should not spur
capital changes at the two government-sponsored agencies.
The market's reaction was overdone, some said, since Lehman
itself said it doubted an accounting change detrimental to the
two largest U.S. mortgage lenders would be enacted.
The U.S. equity markets started on a weaker note after a
sharper-than-expected decline in pending U.S. home sales in May
signaled more trouble for the beleaguered housing market.
But Bernanke's speech bolstered investor sentiment, and
helped U.S. stocks bounce back from a session on Monday that
had pushed the broad S&P 500 Index into a bear market --
defined as a 20 percent decline from a recent peak.
"The market is very oversold and was due for a bounce. I'm
looking for financials to stabilize," said Dave Rovelli,
managing director of U.S. equity trading at Canaccord Adams.
The S&P financial index <.GSPF> jumped 5.7 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 3.3 percent.
Fresh concern about the banking sector's outlook drove
shares down in Europe.
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's decline pulled prices sharply off last week's record
$145.85, a peak scaled amid rising tensions between Iran and
the West over Tehran's nuclear ambitions and worries a brewing
storm could hit the Gulf of Mexico's offshore oil fields.
U.S. light crude <CLc1> settled at $136.04 a barrel, down
$5.33, after dropping as low as $135.14 a barrel, the lowest
since June 26. London Brent crude <LCOc1> settled at $141.87 a
barrel, down $5.44.
Spot gold prices <XAU=> fell $5.05 to $920.40.
Bernanke's comments bolstered the dollar.
"The FX market in general is heartened by Bernanke's
extension of liquidity," said Win Thin, senior currency
strategist, at bank Brown Brothers Harriman in New York.
"It shows that the Fed continues to remain flexible" in its
efforts to unfreeze credit and instill calm in financial
markets," he added.
The dollar rose against major currencies, with the U.S.
Dollar Index <.DXY> up 0.42 percent at 73.01. Against the yen,
the dollar <JPY=> gained 0.31 percent at 107.47.
The euro <EUR=> fell 0.43 percent at $1.57.
The benchmark 10-year U.S. Treasury note <US10YT=RR> rose
4/32 to yield at 3.89 percent. The 30-year U.S. Treasury bond
<US30YT=RR> added 15/32 to yield 4.46 percent.
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)
