GLOBAL MARKETS-Oil slides, dollar strengthens against yen

Tag : Painting Metal
United States - * European stocks rise on bank results, U.S. on oil slide
* Dollar hits seven-month high vs yen on recovery hopes
* Oil drops towards $117 after U.S. inventory data
(Recasts with U.S. markets, changes byline, dateline; previousLONDON)
By Herbert Lash
NEW YORK (Reuters) - Oil slid again Wednesday to almost $117 abarrel, helping U.S. stocks rebound or pare losses and lifting thedollar to a seven-month high against the yen, while Europeanequities rose on a rally in bank stocks.
Demand for the euro fell ahead of a European Central Bank meetingThursday, when policy-makers are widely seen holding the ECB's keylending rate at 4.25 percent.
Against a backdrop of data painting a bleak economic picture andoil almost $30 below its all-time high set in July, investors havesharply trimmed bets of the ECB raising interest rates any timesoon in the euro zone.
The Fed Tuesday kept its benchmark federal funds rate steady at 2percent and signaled in a statement that it is in no rush to pushborrowing costs higher.
The statement helped U.S. equity markets rally almost 3 percent onTuesday and bolstered the dollar as steady rates should bolster theflagging U.S. economy.
"The U.S. economy is showing some signs of recovery and oil pricesfalling do help," said Meg Browne, a currency strategist at BrownBrothers Harriman in New York. "Going into the end of the year andinto 2009, the tip will be moving in favor to the U.S. dollar."
The technology-rich Nasdaq reversed losses and moved into positiveterritory while the Dow and S&P 500 pared losses to trade littlechanged as the price of oil fell.
The drop in crude prices helped offset a slide in financial sharesafter mortgage finance company Freddie Mac (nyse: FRE - news - people ) posted its fourth straight quarterly loss and equity investorsbraced for more fallout from the prolonged U.S. housing slump.
Freddie Mac said it would set aside twice as much money for badloans and slash its dividend at least 80 percent.
Freddie Mac's shares were down almost 12 percent, while those ofbigger rival Fannie Mae (nyse: FNM - news - people ) declined nearly 8 percent after both falling lower in thesession.
The two companies, which hold or guarantee nearly half the $12trillion in outstanding U.S. mortgages, have been pummeled by thehousing downturn. The S&P 500 financial index was off 0.5 percent,after falling 2 percent.
"Freddie Mac was not a vitamin pill this morning. It clearly wasn'tgood news," said Stephen Massocca, co-chief executive at SanFrancisco-based investment bank Pacific Growth Equities.
"When you lower the dividend, people get out of the stock for thatreason."
Before 1 p.m., the Dow Jones industrial average was down 1.14points, or 0.01 percent, at 11,614.63. The Standard & Poor's 500Index was down 1.53 points, or 0.12 percent, at 1,283.35. TheNasdaq Composite Index was up 12.72 points, or 0.54 percent, at2,362.55.
European stocks rose in relatively calm trade with banks gainingground after BNP Paribas (other-otc: BNPQY.PK - news - people ) delivered earnings that were better than expected and commodityshares rallied on Xstrata (other-otc: XSRAF.PK - news - people )'s $10 billion bid for Lonmin (other-otc: LOMNY.PK - news - people ).
The FTSEurofirst 300 index of top European shares closed 0.9percent higher at 1192.99 points, tapping a 7-week closing high.
Banks were among the biggest risers. BNP Paribas gained 5.2percent, Societe Generale added 3 percent and UBS (nyse: UBS - news - people ) rose 3.7 percent. But Commerzbank fell 1.5 percent as investorsexpressed disappointment over its outlook despite solidsecond-quarter numbers.
The DJStoxx European Banks index rose 1.2 percent.
"The results from BNP and Commerzbank were OK, which helped, andthe Federal Reserve also reassured at the margins," said BernardMcAlinden, market strategist at NCB Stockbrokers in Dublin.
Oil slid to a another three-month low after government data showedbigger-than-expected increases last week in crude and distillatestocks in the United States, the world's top consumer of fossilfuels.
U.S. light sweet crude oil fell $1.20 to $117.97 a barrel.
The U.S. Energy (nasdaq: USEG - news - people ) Information Administration said crude oil stocks rose by 1.7million barrels last week, against expectations of an increase of300,000 barrels.
Gasoline inventories fell by 4.4 million barrels compared withforecasts of a 1.2 million barrels drop, while stocks of distillatefuels, which include heating oil and diesel, rose by 2.8 millionbarrels, 700,000 barrels more than expected.
"It's mixed data -- it's bearish for distillates, bearish for crudeoil and bullish for gasoline. One key question is how much we'regoing to make out of the draw in gasoline when we only have onemonth left in the driving season," said Tim Evans, energy analystat Citi Futures Perspective.
Gold rose 1 percent in Europe as investors bought the metal after athree-day fall in prices to buy below the key $900 an ounce level.Investors interpreted the Fed's statement on Tuesday as indicatingit is in no hurry to hike rates.
Spot gold prices rose $2.30 to $875.55 an ounce.
The dollar rose against major currencies, with the U.S. DollarIndex up 0.36 percent at 74.216. Against the yen, the dollar rose1.18 percent at 109.57. from a previous
The euro fell 0.23 percent at $1.5422.
U.S. long-dated Treasury debt prices extended earlier losses asinvestors stepped up unwinding of hedges on mortgage securitiesafter Freddie Mac unveiled steps to boost capital.
Investors often buy and sell Treasuries and interest rate swaps tohedge against changing values on mortgage bonds.
Freddie Mac plans to keep its mortgage portfolio "roughly flat"until market conditions improve, said the company's chief financialofficer Buddy Piszel.
Concerns about the lack of buying support from Freddie Mac ledtraders to unload mortgage-backed securities and related Treasuryhedges, analysts said.
U.S. Treasury debt prices were lower.
The benchmark 10-year U.S. Treasury note fell 15/32 to yield 4.0816percent. The 30-year U.S. Treasury bond fell 28/32, with the yieldat 4.7007 percent.
Asian shares rebounded from a three-session losing streak. The MSCIindex of Asian stocks outside Japan gained 1.7 percent afterhitting its lowest since March 2007 on Tuesday. Tokyo's Nikkeibenchmark rose 2.6 percent. (Reporting by Steven C. Johnson,Vivianne Rodrigues and Richard Leong in New York and EmeliaSithole-Matarise, Patrizia Kokot, Santosh Menon and Jan Harvey inLondon; Writing by Herbert Lash; Editing by James Dalgleish) Copyright 2008 Reuters, Click for Restriction
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