* Global stocks soar as risk aversion ebbs on bailout hope
* Bailout optimism curbs buying of safe-haven bonds, gold
* Dollar falls vs euro as economic news weighs
* Oil rises on bailout hopes, weaker dollar
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, Sept 25 (Reuters) - Global stocks soared and the
appeal of safe-haven gold and government debt slid on Thursday
as growing hopes the U.S. Congress is close to approving a $700
billion bailout for troubled banks helped ease risk aversion.
U.S. and European stocks jumped more than 3 percent as news
of a tentative agreement lifted optimism that the bailout will
avert a wider financial crisis and deeper economic slide around
the world. U.S. stocks later pared some of those gains.
Government debt prices fell in Europe and the United States
as traders reversed a recent dash for safety despite a fresh
spate of gloomy U.S. economic data and news.
But the U.S. dollar edged lower against the euro and the
yen on lingering nervousness over how effective the bailout
plan may prove and a raft of disappointing economic news.
The dollar's weakness and Wall Street's optimism over the
bailout lifted oil prices more than $2 a barrel in New York.
"We are going up because we are rescue happy today. I think
people are just kind of getting giddy over the bailout again,"
said Phil Flynn, an analyst at oil-trader Alaron Trading in
Chicago.
In equity markets, banking shares jumped on both sides of
the Atlantic as investors bet that the financial sector bailout
could help thaw credit markets and revive lending.
"I certainly think that Congress will pass something and
that will help for a little while. It gives us some time to
unwind some of the positions and see where we stand when the
smoke clears," said Warren Simpson, managing director at
Stephens Capital Management in Little Rock, Arkansas.
U.S. Sen. Christopher Dodd, chairman of the Senate Banking
Committee, said Democrats and Republicans had reached a
"fundamental agreement" on the principles for a bailout bill.
But Sen. Richard Shelby, the top Republican on the banking
committee, said he has doubts about the bailout and the
Senate's Republican leader, Mitch McConnell, said he wants to
review details before agreeing to the rescue plan.
Stocks pared their hefty gains in late trading.
The Dow Jones industrial average <> closed up 196.89
points, or 1.82 percent, at 11,022.06. The Standard & Poor's
500 Index <.SPX> climbed 23.31 points, or 1.97 percent, at
1,209.18. The Nasdaq Composite Index <> gained 30.89
points, or 1.43 percent, at 2,186.57.
Shares of JPMorgan Chase <JPM.N> , the No. 3 U.S. bank,
rose 7.3 percent, and Bank of American <BAC.N> advanced 3.9
percent.
Companies seen as economic bellwethers, such as IBM
<IBM.N>, rallied on hopes the rescue package could spur a
pick-up in consumer and business spending. IBM, the top boost
on the Dow, rose 3.1 percent to $120.11.
European stocks ended sharply higher, rising for the first
time in four sessions as renewed optimism over the U.S. rescue
plan eclipsed weak economic data and a profit warning by
General Electric <GE.N>.
In Europe, the FTSEurofirst 300 <> index of top
regional shares closed 2.16 percent higher at 1,125.43 points.
Among banking stocks, Credit Agricole <CAGR.PA> gained 6.5
percent and Royal Bank of Scotland <RBS.L> added 5 percent.
Shares of Belgian-Dutch financial services group Fortis
<FOR.BR><FOR.AS> fell, however, on persistent worries over its
fundings, traders send. Fortis closed down 6.3 percent.
Despite the euphoria in equity markets, the safe-haven
appeal of government debt did not fully disappear, given
worries about the long-term effectiveness of the bailout.
The benchmark 10-year U.S. Treasury note <US10YT=RR> fell
8/32 to yield 3.85 percent, and the 2-year U.S. Treasury note
<US2YT=RR> also slipped 8/32 to yield 2.17 percent.
"There continues to be uncertainty. That means
flight-to-safety bids for Treasuries will remain," said Michael
Pond, Treasury strategist at Barclays Capital in New York.
Low bond yields, a huge spike in stock market volatility
and the premium for borrowing dollars over anticipated official
policy rates, known as Overnight Index Swaps, remained high.
"That is all indicating a very high level of risk
aversion," said Arthur van Slooten, strategist at Societe
Generale.
In economic data released on Thursday, one report showed
the number of people filing for jobless benefits unexpectedly
surged in the latest week.
Other government data showed a sharper-than-expected slide
in orders for durable goods and a drop in sales of new
single-family homes in August to their lowest level in 17
years.
The market for U.S. commercial paper shrank sharply,
marking the biggest weekly contraction in a year, Federal
Reserve data showed on Thursday, as the credit crisis shook
confidence in all but the safest U.S. government instruments.
For the week ended Sept. 24, the size of the U.S.
commercial paper market, a vital source of short-term funding
for daily operations at many companies, shrank by $61 billion
to $1.702 trillion, the lowest level since early 2006.
In Europe, the Libor/OIS spread blew out to 200 basis
points, up from about 80 basis points at the start of
September. The cost of borrowing euros and sterling also rose.
The premium paid for three-month euro-dollar deposits over
Treasury bill yields, known as the TED spread, was also near
historic highs.
The wide spreads reflect the extent to which banks are
hoarding cash and are loath to lend as they await a resolution
of the U.S. proposal to take troubled assets off banks' books.
Currency trading was choppy as worries remained about when
Congress would approve the plan and how successful the deal
would be in tackling the crisis.
"It's been a real roller-coaster ride," Todd Elmer, a
currency strategist at Citigroup in New York.
The euro <EUR=> rose 0.09 percent at $1.4624, and against
the yen, the dollar <JPY=> fell 0.10 percent at 106.37.
The dollar traded slightly higher against major currencies,
with the U.S. Dollar Index <.DXY> up 0.01 percent at 76.981.
Oil rose. U.S. crude <CLc1> settled at $108.02 a barrel, up
$2.29, while London Brent crude <LCOc1> settled at $104.60 a
barrel, up $2.15.
December gold futures <GCZ8> settled down $13 at $882 an
ounce in New York.
The MSCI index of Asia-Pacific stocks outside of Japan
<.MIAPJ0000PUS> fell 0.84 percent by 2000 GMT. Japanese shares
also lost ground, with the Nikkei average <> down 0.9
percent.
(Reporting by Ellis Mnyandu, Wanfeng Zhou and Nick Olivari in
New York and Jamie McGeever, Jane Merriman, Joe Brock, George
Matlock, Pratima Desai and Jane Baird in London and Blaise
Robinson in Paris; Writing by Herbert Lash; Editing by Leslie
Adler)
