* U.S. stocks surge in late rally on Lehman buyout talk
* Oil slides toward $100 a barrel on dollar, weaker demand
* Government debt prices pare gains as stocks rebound
* Bond prices climb in safety bid after global stock rout
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, Sept 11 (Reuters) - U.S. stocks surged in a
late-day rally on a report of a possible buyout of troubled
investment bank Lehman Brothers, and the dollar rose to a
one-year high as investors dumped overseas investments on
worries of slower global growth.
Oil slid toward $100 a barrel, touching a five-month low of
$100.10, on the stronger dollar, soft demand and a report that
Saudi Arabia has no plans to cut output.
The drop in oil prices also underpinned the stock market as
investors bet that falling fuel prices will shore up business
and consumer spending and drove up energy-sensitive plays like
airlines.
A report in The Wall Street Journal that Bank of America
Corp was in talks to buy Lehman Brothers drove a last-minute
rebound in financial shares.
U.S. Treasury debt prices rose in choppy trade as investors
fretted over the health of the financial sector and the U.S.
economy, sparking flight-to-safety buying in the face of a
stock market that was lower for most of the day.
The U.S. dollar climbed to one-year peaks against the euro
and a major currency basket as nervous investors sought refuge
in the greenback's safety amid escalating global slowdown
fears.
The euro at one point fell to $1.3891 <EUR=>, its lowest
level since September 2007.
The low-yielding Japanese yen also benefited from a surge
in risk aversion, pushing the euro, the Australian and New
Zealand dollars to their lowest levels in at least two years.
U.S. stocks closed broadly higher after a day of sharp
volatility where the major indexes see-sawed between positive
and negative trade.
The bulk of the market's gains came within the last half
hour of trading.
"The decline in oil is helping in the background, but it
seems the market is more focused on credit issues and
developments around Lehman," said Bobby Harrington, head of
block trading at UBS in Stamford, Connecticut.
The Dow Jones industrial average <> closed up 164.96
points, or 1.46 percent, at 11,433.88. The Standard & Poor's
500 Index <.SPX> added 17.07 points, or 1.39 percent, at
1,249.11. The Nasdaq Composite Index <> gained 29.52
points, or 1.32 percent, at 2,258.22.
Shares of Lehman ended down 41.8 percent at $4.22, but most
financial shares ended higher.
Bank of America <BAC.N> closed up 2.0 percent at $33.06,
and American International Group <AIG.N>, the world's biggest
insurer, recovered from double-digit losses to close up 0.3
percent.
Washington Mutual <WM.N>, the biggest U.S. savings and
loan, closed up 22 percent at $2.83. Earlier, its shares sank
to below $2 for the first time since 1990 on anxiety over its
capital needs and survival prospects.
General Motors <GM.N> rose more than 11 percent, which
traders attributed to hopes that Washington might work out a
financial lifeline for the U.S. auto industry.
Stocks in Europe and earlier in Asia fell on fears about
fallout from Lehman, which on Wednesday posted a $3.93 billion
loss and failed to announce it had raised desperately needed
capital.
Investors fear an unstable financial sector would hurt the
economy as mounting mortgage losses restrain bank lending, a
key source of business investment and consumer spending.
European shares fell for a third session in a row amid
investor unease about financials. Banks were the biggest
sectoral loser in Europe, with the DJ banking index <.SX7P>
down 1.86 percent.
The FTSEurofirst 300 <> index of top European shares
ended down 0.65 percent at 1,140.71 points. The benchmark is
down more than 24 percent so far this year.
"Overall on a 12-month view, the financial sector is
unlikely to be a strong performer," said Ronan Carr, European
strategist at Morgan Stanley.
"The profit outlook for banks will continue to be
difficult, bad debt is likely to rise and the funding backdrop
will remain difficult."
Shares of Societe Generale <SOGN.PA> fell 3.1 percent,
Fortis <FOR.BR> shed 2.1 percent, BNP Paribas <BNPP.PA> dropped
1.1 percent, Dexia <DEXI.BR> slipped 4.1 percent and Credit
Agricole <CAGR.PA> shed 2.3 percent.
U.S. Treasuries pared gains to trade mostly unchanged as
investors bet on a Lehman stabilization plan. Two-year euro
zone government bonds rose as jitters about the fragile U.S.
banking system fueled demand for safe and liquid paper.
But a late bounce in European and U.S. equities from
earlier steep lows pushed the 10-year Bund future down on the
day after having traded in positive territory most of the
session.
"Oil is helping everything across the board. We are seeing
more of a rotation out of commodities into stocks," said
Anthony Conroy, head trader at BNY ConvergEx, an affiliate of
the Bank of New York Mellon Corp.
Oil fell from a rising dollar and a report from the
International Energy Agency, which lowered its oil demand
growth forecasts due to a slowing global economy.
U.S. crude <CLc1> fell $1.71 to settle at $100.87 a barrel
after dipping as low as $100.10, the lowest level since early
April. London Brent <LCOc1> slipped $1.68 to $97.29 a barrel
after dropping to a six-month low of 96.99.
The dollar rose against major currencies, with the U.S.
Dollar Index <.DXY> up 0.17 percent at 80.172. Against the yen,
the dollar <JPY=> was up 0.51 percent at 107.05.
The euro <EUR=> fell 0.26 percent at $1.3948.
Analysts said the uncertain global economic outlook was
causing U.S. investors to liquidate assets in emerging markets,
where inflation was also becoming a problem.
"We believe a lot of the dollar buying we are seeing
reflects U.S.-based investors selling overseas assets and
bringing the money home," said Sophia Drossos, a currency
strategist at Morgan Stanley in New York. "It appears to be
concentrated more in emerging markets, judging from the
weakness in some of those equity markets."
Gold, silver and platinum group metals all steepened recent
days' losses, pulled lower by the dollar's strength, a drop in
oil and the exit by investors from commodities to cash.
Gold prices <XAU=> fell $10.30 to $741.70 an ounce.
Shares overnight in Asia fell broadly, with persistent
instability in the financial sector driving stocks outside
Japan tumbling to their lowest in almost two years.
Tokyo's Nikkei share average <> closed down 2 percent
at a six-month low and MSCI's Asia Pacific ex-Japan index
<.MIAPJ0000PUS> dropped 2.8 percent to its lowest since October
2006.
(Reporting by Ellis Mnyandu, Richard Valdmanis, Lucia
Mutikani, Chris Reese and Carole Vaporean in New York and Atul
Prakash and Ikuko Kao in London; Writing by Herbert Lash;
Editing by Leslie Adler)
