* Global stocks rally as oil prices slide; banks soar
* Oil prices extend two-week decline on U.S. inventory
* Bonds fall as traders unwind safe-haven gains
* Dollar extends gains as stocks surge, oil prices fall
(Recasts throughout with U.S. market focus, adds byline;
dateline previous LONDON)
By Herbert Lash
NEW YORK, July 23 (Reuters) - Global stocks rose on
Wednesday in a broad rally driven by a strengthening dollar,
sliding oil prices and a surge in bank stocks in anticipation
of a bailout in the slumping U.S. housing finance sector.
Oil fell for a second straight session after a U.S.
government report showed larger-than-expected increases in
inventories of gasoline and distillates.
Sliding oil prices and rising stock markets combined to cut
any flight-to-safety bids for U.S. and euro zone government
debt, leading bond prices to fall.
The drop in oil and improving confidence in the battered
U.S. financial sector helped the dollar rally to a one-month
peak against the yen and a two-week high against the euro.
Investors snapped up shares and bonds of mortgage finance
companies Fannie Mae <FNM.N> and Freddie Mac <FRE.N>, which
would receive an emergency government lifeline under a bill
President George W. Bush was expected to sign into law.
Concerns about the health of the two companies, which own
or guarantee almost half of the $12 trillion in U.S. mortgage
debt outstanding, had weighed on financial markets and dashed
hopes for quicker recovery in battered U.S. housing market.
"Congress is planning on passing this housing bill today
and the president said he was going to sign it," said Ronald
Simpson, managing director of global currency analysis at
Action Economics in Tampa, Florida.
"While it's not a fix to the problem, it certainly is going
to allay some fears at least for the short term," he said.
Shares of Freddie Mac jumped 10 percent to $10.65, while
Fannie Mae climbed 15 percent to $15.40.
Banks shares also rose, but pared gains by midday.
"Financials are leading the market place up and they
continue to be strong right across the board," said James
Rosenthal, head trader at Punk Ziegel & Company in New York.
"The housing rescue package is certainly helpful for the
banking industry as well. Fannie Mae and Freddie Mac paper
doesn't need to be marked down."
Before 1 p.m., the Dow Jones industrial average <> was up 10.83 points, or 0.09 percent, at 11,613.33. The Standard &
Poor's 500 Index <.SPX> was up 5.26 points, or 0.41 percent, at
1,282.26. The Nasdaq Composite Index <> was up 11.80
points, or 0.51 percent, at 2,315.76.
European shares rose more than 2 percent as banks enjoyed
their best day in four months, while automakers gained on
strong earnings and a fall in crude oil.
Banks, which are still down 30 percent so far this year,
recorded their biggest one-day gain since mid-March with the
DJStoxx European banking index <.SX7P> soaring 6.2 percent.
HBOS <HBOS.L> rallied 16.8 percent on trader speculation
that Spain's BBVA <BBVA.MC> had cast an acquisitive eye on the
British lender. Both banks declined to comment.
Other big advancers included Barclays <BARC.L>, up 11.8
percent, Credit Agricole <CAGR.PA>, up 7.4 percent, and Credit
Suisse <CSGN.VX>, up 7.1 percent.
The FTSEurofirst 300 index <> of top European shares
closed 2.1 percent higher at 1,188.99 points.
Oil fell. The U.S. Energy Information Administration (EIA)
said gasoline stocks rose by 2.9 million barrels last week
against forecasts of a 300,000 barrels build.
"This looks like another pretty bearish report with a large
build in distillates and gasoline ... People are not driving as
much, it looks like consumers are slowing demand," said Rob
Kurzatkowski, futures analyst at OptionsXpress in Chicago.
Gold fell more than 2 percent as the dollar climbed to its
firmest level since July 10 against the euro, denting the
precious metal's appeal as a currency hedge.
A combination of weaker oil prices, declines in the price
of other commodities, improving credit market and the belief
that the Federal Reserve may be focusing more on inflation are
working to push gold lower.
"Gold has four major things hitting it today so I would be
very suprised, given the way other commodities and financial
markets are moving, if gold wasn't down," said HSBC analyst
James Steel.
U.S. Treasury debt prices fell, taking benchmark yields to
their highest in nearly a month, while euro zone government
bonds fell for a sixth straight session.
"The driver is a classic asset allocation/safe-haven flow
idea whereby European equities are up ... exerting pressure on
bonds," said John Davies, fixed income strategist at WestLB.
Lower oil prices have helped boost stocks and hurt bonds,
under the premise that weaker energy prices will help to
bolster consumer spending and the struggling U.S. economy.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was
down 14/32 to yield 4.16 percent. The 30-year U.S. Treasury
bond <US30YT=RR> fell 24/32 to yield 4.71 percent.
The dollar rose against major currencies, with the U.S.
Dollar Index <.DXY> up 0.34 percent at 72.712. Against the yen,
the dollar <JPY=> was up 0.36 percent at 107.73.
The euro <EUR=> was down 0.51 percent at $1.5703.
U.S. light sweet crude oil <CLc1> fell 72 cents to $127.70
a barrel.
Spot gold <XAU=> fell $18.20 to $926.80.
An easing of risk aversion also was seen in Asia, where
Japan's Nikkei share average <> rose 1 percent to a
two-week high. The Nikkei has posted back-to-back gains of at
least 1 percent for the first time since April.
Outside of Japan, shares in the Asia-Pacific region
<.MIAPJ0000PUS> climbed 2.2 percent to their highest level in
three weeks, according to an MSCI index.
Hong Kong's Hang Seng <> rose 1.9 percent to a
one-month high.
(Reporting by Ellis Mnyandu, Chris Reese, Wanfeng Zhou in New
York and Patrizia Kokot, Alex Lawler, Santosh Menon and Jan
Harvey in London.)
(Reporting by Herbert Lash. Editing by Richard Satran)
