(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, March 5 (Reuters) - Oil and inflation-hedge gold
lurched to new highs on Wednesday while global stocks advanced
moderately as investors found a glimmer of recovery hopes in
data that still painted a weak overall picture of the U.S.
economy.
Investors viewed a report that the U.S. service industry
shrank at a much slower pace than expected in February as a
positive. An unexpected drawdown on U.S. crude stocks last week
also suggested that demand for energy to fuel the flagging U.S.
economy is picking up, boosting crude futures as well.
The dollar fell to record lows against the euro and a
basket of currencies on the view that a soft job market may be
reported in Friday's monthly U.S. jobs report after the private
ADP Employer Services reported job losses.
With the dollar under pressure, spot gold prices jumped
more than $20 to a historic high above $995 an ounce, and
silver spiked to a 27-year peak.
Early in the session, U.S. and European shares rallied and
prices for U.S. Treasury debt fell on an unexpectedly strong
report on the U.S. service sector in February. Investors scaled
back bets on a deep U.S. recession after the
better-than-expected reading from the Institute for Supply
Management in its non-manufacturing index at 49.3 in February.
This topped market expectations for a reading of 47.0 and above
January's print of 44.6. A reading below 50 is a contraction.
"The (stock) market has been hit since Friday quite hard,
so it's kind of looking for any kind of good news," said Alan
Lancz, who runs a money management firm in Toledo, Ohio. "So
the non-manufacturing ISM is moderately positive, but it's
definitely not a game changer."
The rally lost momentum as investors weighed prospects for
a much-rumored bailout of Ambac Financial Group Inc <ABK.N> ,
the troubled No. 2 bond insurer that plays a key role in the
credit 'food chain.' A sell-off in financial shares ensued
after Ambac announced a recovery plan that called for a public
share offering and not the bailout from a major investor many
had hoped would be announced.
"It's enough for them to maintain the status quo in terms
of their AAA rating but it's not enough to relieve the rating
agencies of their long-term concerns," said Peter Boockvar,
equity strategist at Miller Tabak & Co in New York.
The Dow Jones industrial average <> was up 41.19
points, or 0.34 percent, at 12,254.99. The Standard & Poor's
500 Index <.SPX> was up 6.95 points, or 0.52 percent, at
1,333.70.
European shares snapped a five-day losing streak, helped by
the hopes of an imminent rescue package for bond insurer Ambac
and better-than-expected U.S. service sector data.
The pan-European FTSEurofirst 300 <> ended up 1.66
percent at 1,301.17 points, but still down nearly 14 percent so
far this year.
Banks and commodity stocks were the top weighted gainers in
Europe, led by HBOS <HBOS.L>, up 6 percent, and Societe
Generale <SOGN.PA>, which rose 3.5 percent.
Miners tracked copper prices higher, and oil stocks
followed a rise in crude. BP <BP.L>, Total <TOTF.PA> and Royal
Dutch Shell <RDSa.L> all gained.
Investors awaited interest rate decisions from the European
Central Bank and the Bank of England on Thursday.
The dollar fell as Treasury Secretary Henry Paulson told
policy-makers that while the U.S. economy would likely continue
to grow, the risks were to the downside, adding to mounting
fears of a recession in the United States.
Investors showed little restraint against driving the
dollar to a new low against the euro ahead of the ECB policy
meeting.
Analysts expect the ECB to maintain its hawkish inflation
rhetoric despite complaints this week by euro zone finance
minister that the euro is overvalued against some currencies.
U.S. government debt prices trimmed losses as stocks turned
lower on declining bank shares, restoring some of Treasuries'
safe-haven allure.
The euro <EUR=> jumped to a historic peak of $1.5302
against the dollar, according to Reuters data.
The dollar index, which tracks the greenback's performance,
against a basket of currencies, dropped to record troughs at
73.371 <.DXY>.
Oil hit an all-time high above $104 a barrel after a
surprise fall in U.S. crude stocks, which fell 3.1 million
barrels last week, the Energy Information Administration said,
confounding expectations for a 2.4 million barrel increase.
"This actually shows that maybe demand isn't going to be as
weak as we previously thought, especially with refinery use
jumping," said Rob Kurzatkowski, an analyst with
Optionsxpress.
U.S. crude futures <CLc1> settled up $5.00 at $104.52 a
barrel, before extending gains to an all time high of $104.95 a
barrel in late trade. London Brent crude <LCOc1> surged $4.21
to trade at $101.73 a barrel late Wednesday.
Spot gold <XAU=> rose as high as $991.80 an ounce, after
slipping to a low of $959.45.
The active U.S. gold contract for April delivery <GCJ8>
settled up $22.20, or 2.3 percent, at $988.50 an ounce. Earlier
it scaled a record high of $995.20.
Spot silver <XAG=> jumped as high as $20.82 an ounce,
compared with $19.71/19.76 in New York.
(Writing by Herbert Lash. Editing by Richard Satran)
