* U.S., European stocks rise on favorable U.S. data
* Euro at six-month low vs dollar as euro zone data weighs
* Oil rises as Hurricane Gustav heads near Gulf of Mexico
* U.S. bonds slip as confidence data eases safe-haven bid
(Recasts with U.S. markets, adds byline; changes dateline;
previous LONDON)
By Herbert Lash
NEW YORK, Aug 26 (Reuters) - U.S. and European stocks edged
higher on Tuesday as a better-than-expected reading of American
consumer confidence and signs of life in the housing market in
August boosted equities and the dollar and reduced recent
safe-haven bidding for U.S. government debt.
Oil rose to almost $118 a barrel before paring most gains.
Concern about possible disruption to U.S. offshore oil and gas
production from a strengthening Hurricane Gustav underpinned
early trading, but concern over weak demand and a strong dollar
cut into gains.
The U.S. dollar rallied to a six-month high against the
euro as the single currency tumbled on weak German data that
raised recession fears in the euro zone and fueled expectations
the European Central Bank will need to cut interest rates.
The reading of U.S. consumer confidence cheered equity
investors in Europe, but the euro zone government debt market
was broadly underpinned by concerns over the economic outlook
and more jitters over the health of financial institutions.
The Ifo German business climate index for August fell more
than expected to a three-year low, while German GDP contracted
in the second quarter for the first time since 2004. German
consumer sentiment also worsened more than expected, hitting a
five-year low.
The sharp deterioration in German corporate sentiment
helped Bund futures to briefly hit a 3-1/2 month high and
triggered a sell-off in the euro <EUR=>.
"The plunge in Ifo business confidence in August has raised
the risk that, right after the ECB rate hike in July, Germany
may be falling into recession instead," said Bank of America's
chief economist, Holger Schmieding.
"With Spain turning down, Italy struggling and France
losing a lot of momentum too, a serious German downturn would
not bode well for the euro zone as a whole as well, to put it
mildly."
U.S. energy companies led the S&P 500 higher as oil rose on
hurricane-related concerns. Shares of Anadarko Petroleum
<APC.N> jumped 6 percent after the company announced an up to
$5 billion share repurchase program.
Financial companies, which had fallen sharply on Monday on
credit fears, bounced back and helped support the market.
"It's fair to say two things: the economic data calendar
gave us a mixed message today on balance," said Arthur Hogan,
chief market analyst at Jefferies & Co in Boston.
Before 1 p.m., the Dow Jones industrial average <> was
up 12.37 points, or 0.11 percent, at 11,398.62. The Standard &
Poor's 500 Index <.SPX> was up 3.06 points, or 0.24 percent, at
1,269.90. The Nasdaq Composite Index <> shed 0.34 points,
or 0.01 percent, at 2,365.25.
European shares rose as investors cheered the U.S. consumer
confidence data and as mobile phone maker Nokia <NOK1V.HE>
jumped almost 3 percent.
The FTSEurofirst 300 <> index of top European shares
closed with a gain of 0.16 percent at 1,171.09 points, having
fallen as much as 1.4 percent earlier on the back of the steep
slide in German business sentiment.
Thanks primarily to Nokia's advance after the company
unveiled two new high-end models, technology <.SX8P> was the
day's strongest sector in Europe with a gain of 2 percent.
Basic resources <.SXPP>, which includes mining, was the
weakest with a loss of 0.8 percent amid lingering worries about
global growth, despite miner Rio Tinto <RIO.L> reporting a
better-than-expected 55 percent rise in first-half profit.
Oil rose on Gustav concerns. The U.S. National Hurricane
Center said Gustav, a category one hurricane, had strengthened
slightly in the central Caribbean as it churned toward
southwestern Haiti.
U.S. light sweet crude oil <CLc1> rose 26 cents to $115.37
a barrel.
Investors turned away from lower-risk Treasuries after data
showed a rise in new home sales and a decline in the inventory
of new homes for sale in July. Some investors interpreted the
data as a sign the U.S. housing slump may not be worsening.
"The economic data was not as bad as anticipated," said
William Larkin, fixed income manager at Cabot Money Management
in Salem, Massachusetts. "People are looking at the glass as
half full today, rather than half empty."
The benchmark 10-year U.S. Treasury note <US10YT=RR> fell
6/32 to yield 3.81 percent. The 30-year U.S. Treasury
bond<US30YT=RR> fell 9/32 to yield 4.41 percent.
The dollar rose as a jump in U.S. consumer confidence in
August added to the allure of the U.S. currency.
"U.S. consumer confidence saw a decent rebound, although it
remains low overall in historical terms," said Matthew Strauss,
senior currency strategist, RBC Capital Markets in Toronto.
"But because it is an upside surprise, it is positive for the
dollar."
The dollar rose against major currencies, with the U.S.
Dollar Index <.DXY> up 0.71 percent at 77.37. Against the yen,
the dollar <JPY=> fell 0.47 percent at 109.83.
The euro <EUR=> fell 0.86 percent at $1.4623.
Gold recovered as rising oil prices lifted the precious
metal from earlier lows.
Spot gold prices <XAU=> rose $1.05 to $822.15 an ounce.
Asian stocks fell more than 1 percent overnight on
persistent jitters about the credit crisis and global growth.
Japan's Nikkei stock index <> cut some losses to end
down 0.8 percent, near a five-month low touched on Friday.
Stocks outside Japan in the Asia-Pacific region were off
1.4 percent, within sight of a 17-month low hit on Thursday,
according to an MSCI index <.MIAPJ0000PUS>.
(Reporting by Kristina Cooke, Nick Olivari, Chris Reese and
Alex Lawler, Jan Harvey and Kirsten Donovan in London and Peter
Starck in Frankfurt)
(Reporting by Herbert Lash. Editing by Richard Satran)
