* U.S. shares reverse early losses, bank stocks rally
* Spot gold drops for fifth consecutive session
* Government bond prices pared back as stock slide pauses
By Daniel Bases
NEW YORK, May 21 (Reuters) - The euro jumped against the
dollar on Friday after the head of the European Central Bank
said the single currency was not in danger and U.S. stocks
pushed higher, led by bank shares a day after the U.S. Senate
passed the most sweeping overhaul of financial regulation since
the 1930s.
But worries about euro zone sovereign debt crisis continued
to take a toll on investors' appetite for risk, U.S. Treasuries
debt prices rose through most of the morning as fears that
global fiscal tightening would crimp an economic recovery drove
a bid for safety, but turned as stocks rose. European shares
hit a more than eight-month low but pared losses after the
comments on the euro by the ECB president, Jean-Claude
Trichet.
German lawmakers on Friday backed the $1 trillion rescue
plan for the euro zone. [] []
Skittish trading on a day when many U.S. equity options and
some options on stock indexes expire contributed to market
volatility.
The price of spot gold, which hit a record high one week
ago, was down for a fifth consecutive day, while crude oil
pared earlier losses, a day after touching a seven-month low.
The euro traded up 0.66 percent at $1.2547 <EUR=>, on pace
for its first weekly gain against the greenback in six weeks.
Bearish sentiment against the currency had become so extreme in
the midst of the Greek-led debt crisis that investors started
to buy the euro zone currency in case of intervention.
European finance ministers were to meet later on Friday to
discuss changes to budget rules to prevent another Greek-style
debt crisis.
"These are still relatively illiquid market conditions with
real money pushed to the sidelines," said Michael Woolfolk,
senior currency strategist at BNY Mellon in New York. "The
market is controlled by speculators and they can push it around
a fair bit."
On Wall Street, stocks jumped in late morning trade,
reversing early losses which had seen the Dow Jones industrial
average dip below the psychologically significant 10,000 point
level.
The Dow Jones industrial average <> was up 70.36
points, or 0.70 percent, at 10,138.37. The Standard & Poor's
500 Index <.SPX> was up 11.21 points, or 1.05 percent, at
1,082.80. The Nasdaq Composite Index <> was up 22.94
points, or 1.04 percent, at 2,226.95
The S&P Financial index <.GSPF>rose 2.82 percent shares
from Thursday's three-month low, when the index fell nearly 5
percent.
European shares finished lower.
The FTSEurofirst 300 <> index of top European shares
provisionally closed down 0.5 percent.
MSCI's All-Country equity index <.MIWD00000PUS> was flat,
down just 0.01 percent while MSCI's emerging market share index
<.MSCIEF> rose 0.27 percent. Both indexes were sharply lower
earlier in the global trading day.
In Japan the Nikkei <> closed down 2.5 percent and
lost 6.5 percent on the week, its biggest weekly drop in more
than a year.
SAFETY?
As global share prices cut losses, there was some paring
back of money going into European government debt.
The June Bund future <FGBLc1> shed around half a point from
a record high of 128.97. By 1452 GMT, the contract was at
128.56, up 25 ticks on the day.
"The stock market is rallying and so they're selling back
Bunds, we're just in that mentality at the moment," said a
trader in London.
The premium investors demand to hold Spanish, Italian and
Greek sovereign bonds rather than German benchmarks fell. The
10-year Spanish/German government bond yield spread
<GR10YT=TWEB><DE10YT=TWEB> narrowed by 5 basis points from the
day's peak to 143 bps.
- U.S. Treasuries dipped narrowly into minus territory
after stock market gains tempered the safety bid for U.S.
government debt that has dominated trade all week.
The price on benchmark 10-year notes <US10YT=RR> slipped
1/32 of a point. The 10-year note yield rose to 3.22 percent
from 3.21 percent on Thursday.
Spot gold prices dropped 0.26 percent or $3.10 an ounce to
$1,178 <XAU=>. U.S. light sweet crude oil <CLc1> fell 53 cents,
or 0.75 percent, to $70.27 per barrel.
(Additional reporting by Rodrigo Campos and Nick Olivari in
New York, George Matlock, Simon Falush, Naomi Tajitsu in
London)
