* U.S. stocks rally second day on JPMorgan's results, oil
* Crude slips below $130 barrel on outlook demand to slow
* Dollar rises vs yen, erases euro losses on oil's fall
* U.S. government debt falls 1 point on oil, stock rally
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, July 17 (Reuters) - Global stocks surged for a
second day on Thursday as JPMorgan Chase's earnings lifted the
battered banking sector and a slide in oil prices to under $130
a barrel eased fears that inflation could run amok.
Even though JPMorgan cautioned investors that the U.S.
mortgage market and economy are getting worse, its
stronger-than-expected results triggered a surge in other bank
shares a day after Wells Fargo <WFC.N>'s earnings sparked an
across-the-board rally.
A $5 drop in the price of crude added to a decline of about
12 percent from last week's record peak of $147.27 and marked
the biggest 3-day loss in dollar terms since oil futures
started trading in New York in 1983.
The dollar surged against the yen and erased earlier losses
versus the euro as the drop in oil prices enhanced the outlook
for the economy. U.S. government debt extended losses to a full
point as U.S. stocks rallied and crude prices fell.
The bulk of crude oil's slide in recent days has been due
to concern that a sluggish U.S. economy would cut deeply into
demand for fuel in the world's biggest energy consumer.
"Consumers are being pinched between higher costs for
necessities and lower real wages. The end result is falling
demand almost across the board," said Peter Beutel, president
of Cameron Hanover in New Canaan, Connecticut.
"In order to have a sustainable rally, what you need is oil
prices coming down, and some good earnings numbers coming out,"
said John Praveen, chief investment strategist at Prudential
International Investments Advisers LLC in Newark, New Jersey.
The Dow Jones industrial average <> closed up 198.99
points, or 1.77 percent, at 11,438.27. The Standard & Poor's
500 Index <.SPX> added 14.46 points, or 1.16 percent, at
1,259.82. The Nasdaq Composite Index <> gained 27.45
points, or 1.20 percent, at 2,312.30.
In Europe, stocks staged a sharp rally with an index of the
region's top 300 companies rising as much as 3.47 percent.
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.
JP Morgan's <JPM.N> shares jumped 10.5 percent, while Bank
of America Corp <BAC.N> rose 12 percent and Citigroup <C.N>
over 9 percent. The three banks were the top contributors the
broad-market S&P 500 index.
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 pillars of U.S.
home financing, after initial skepticism over a U.S. rescue
plan. Freddie rose almost 22 percent, and Fannie rose more than
18 percent.
European 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.
Whether the rally marked a turnaround for global stocks
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. crude <CLc1> settled down $5.31 at $129.29 a barrel,
the lowest since early June, adding to more than $10 of losses
over the previous two days. London Brent crude <LCOc1> fell
$4.74 to settle at $131.07 a barrel.
U.S. gold futures rebounded from the previous session's
sharp losses in choppy trade as interest rose for hard assets
amid volatile financial markets.
Gold for August <GCQ8> settlement rose $8 to $970.70 an
ounce in New York, recovering half its losses from Wednesday.
However, gold fell in after-hours electronic trade as oil
prices dipped under $130 a barrel in late trading.
The benchmark 10-year U.S. Treasury note <US10YT=RR> fell
26/32 to yield 4.04 percent. The 30-year U.S. Treasury bond
<US30YT=RR> fell 24/32 to yield 4.64 percent.
The dollar rose against major currencies, with the U.S.
Dollar Index <.DXY> up 0.23 percent at 72.20. Against the yen,
the dollar <JPY=> rose 1.58 percent at 106.70.
The euro <EUR=> fell 0.06 percent at $1.5832.
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)
