(Recasts with U.S. markets, adds byline; changes dateline;
previous LONDON)
* U.S. stocks rally after China raises fuel prices 18 pct
* Crude oil falls almost $5 to settle below $132 a barrel
* Dollar firms; euro falls vs sterling on UK retail sales
* Bonds fall as oil's plunge seen as positive for economy
By Herbert Lash
NEW YORK, June 19 (Reuters) - Oil prices tumbled on
Thursday after China raised fuel prices in a move that may ease
strains on global economic growth, triggering a rally in U.S.
equities and gains in the dollar.
Crude fell almost $5 to settle below $132 a barrel
following China's surprise decision to hike gasoline and diesel
prices by up to 18 percent.
Soaring oil prices this year have fanned inflation worries
and fears that economic growth around the world would slow.
U.S. stocks rose on hopes falling crude demand will ease
inflationary pressures and lift a key brake on the economy.
The shares of fuel-sensitive airlines soared along with
retail shares, as lower oil prices would give consumers more
money to spend elsewhere.
The Standard & Poor's airline index <.XAL> jumped more than
10 percent and the S&P retail index <.RLX> rose 2.1 percent.
"Lower oil prices are good for the consumer; you could
expect consumer spending to improve," said William Rutherford,
of Rutherford Investment Management LLC in Portland, Oregon.
"It will also lighten the load on the global economy and
that helps big manufacturers and technology companies whose
foreign sales make up the bulk of their sales," he said.
The Dow Jones industrial average <> rose 34.03 points,
or 0.28 percent, at 12,063.09. The S&P 500 Index <.SPX> added
5.02 points, or 0.38 percent, at 1,342.83. The Nasdaq Composite
Index <> rose 32.36 points, or 1.33 percent, at 2,462.07.
Shares of big manufacturers, including Boeing Co <BA.N> and
DuPont Co <DD.N>, rose as oil prices fell. Retailers also
benefited, with Costco Wholesale Corp <COST.O> up 2 percent.
More signs of a sluggish U.S. economy and a senior
executive's warning of further write-downs at Citigroup
initially put a damper on U.S. and European stock markets.
While China's move was positive for retailing and other
sectors, Todd Clark, managing director of stock trading at
Nollenberger Capital Partners in San Francisco, said that
"until financials can stabilize, it's tough to be overly
positive about the market."
Worries over major banks mounted again as Citigroup's chief
financial officer told investors on a conference call that the
largest U.S. bank could have substantial write-downs in the
second quarter, triggering a near 4 percent drop in its
shares.
European shares closed lower, driven by weaker banks and
technology stocks on concerns of further write-downs at British
mortgage lender HBOS <HBOS.L> and market talk of lowered
guidance at semiconductor maker ASML <ASML.AS>.
Banks were the largest decliners in Europe by market
weighting, with HBOS shedding 7 percent after warning of a one
billion pound ($1.96 billion) write-down in its first half as
declining housing prices put pressure on bad debts.
"It's pretty grim. For a reasonable part of the United
States, the economic signals are not encouraging," said Stephen
Pope, chief global market strategist at Cantor Fitzgerald
Europe.
European stocks earlier rallied after unexpected news of a
British shopping spree last month pushed retail sales up 3.5
percent, their fastest monthly rate since the series began in
1986.
But an unexpectedly weak reading of factory activity in the
U.S. Mid-Atlantic region in June later pushed stocks lower on
both sides of the Atlantic, helping European shares to close
down.
The FTSEurofirst 300 index <> of top European shares
fell 0.5 percent at 1,244.77 points.
The dollar rose versus the euro, boosted by oil's sharp
drop and a surge in British retail sales that caused traders to
offload the European single currency to buy sterling.
May's surprise jump in retail sales raised expectations the
Bank of England will raise interest rates, helping to drive the
pound to its highest level in over a week against the dollar
and spark a rally versus the euro.
"The euro came under a lot of pressure today with investors
selling the currency to buy back sterling," said Joe Manimbo, a
currency trader at Ruesch International in Washington. "That
combined with the sharp drop in oil prices, ended up giving the
dollar a boost."
The dollar rose against major currencies, with the U.S.
Dollar Index <.DXY> up 0.10 percent at 73.479. Against the yen,
the dollar <JPY=> rose 0.10 percent at 107.96.
U.S. Treasury debt prices fell as a drop in jobless claims
and lower oil prices, both positive for the economy, encouraged
traders to take profits after a three-day winning streak.
Lower oil prices were responsible for some of the pressure
on bond prices, based on the idea that if oil is cheaper "that
leaves a little more room for consumer spending" and economic
growth, said John Spinello, senior vice president and chief
fixed-income technical strategist at Jefferies & Co.
The benchmark 10-year U.S. Treasury note <US10YT=RR> fell
20/32 to yield 4.22 percent. The 30-year U.S. Treasury bond
<US30YT=RR> fell 22/32 to yield 4.77 percent.
July crude <CLN8> settled down $4.75 at $131.93 per barrel,
hitting the day's low in extended trading at $131.48. Crude had
hit a record high of $139.89 on Monday.
Gold <XAU=> reached a peak of $907.90, its highest since
June 9, before easing with oil's decline to trade at
$902.95/904.35 by New York's last quote.
Asian stocks fell earlier in the day after the Dow Jones
closed at a three-month low, with Japan's Nikkei share average
<> finished 2.2 percent lower.
Shares elsewhere in the Asia-Pacific region fell 1.7
percent, snapping three days of gains and bringing declines
year-to-date to 16 percent, an MSCI index <.MIAPJ0000PUS>
shows.
(Reporting by Walker Simon, Ellen Freilich, Deborah Jian Lee,
Lucia Mutikani and Nick Olivari in New York, and Naveen Thukral
and Patrizia Kokot in London)
(Reporting by Herbert Lash. Editing by Richard Satran)
