Oil retreats after Monday's rally; stocks gain

NEW YORK (Reuters) - Oil prices resumed their downward path on Tuesday after rallying the previous session, while stocks climbed as investors snapped up beaten-down energy shares.

Brent and U.S. crude oil dropped more than 2 percent each following a deal that will add more Iraqi crude to markets and gains in the dollar. Brent crude oil is down more than 30 percent since June.

The Dow Jones industrial average closed at a record high, boosted by gains in energy shares as investors searched for bargains in the sector. The S&P energy index <.SPNY>, which is down 14 percent since June, jumped 1.3 percent.

"The market is sniffing out a bottom in the underlying commodity and we are seeing a bounce in energy stocks from having been oversold in the last month or so," said John Manley, chief equity strategist at Wells Fargo Funds Management in New York.

The Dow Jones industrial average <.DJI> rose 102.75 points, or 0.58 percent, to 17,879.55, the S&P 500 <.SPX> gained 13.11 points, or 0.64 percent, to 2,066.55 and the Nasdaq Composite <.IXIC> added 28.46 points, or 0.6 percent, to 4,755.81.

MSCI's global share index <.MIWD00000PUS> was up 0.3 percent, while European shares <.FTEU3> ended up 0.5 percent. Emerging market shares tracked by MSCI <.MSCIEF> lost 0.1 percent, with Brazil's Bovespa index <.BVSP> down 1.3 percent.

Giving the Nasdaq its biggest boost, shares of Biogen Idec jumped 6.4 percent to $328.27 after favorable data from the Phase III trial of its Alzheimer's drug. The Nasdaq biotech index <.NBI> jumped 2.1 percent.

In the energy market, benchmark Brent crude oil fell $2.00, or 2.8 percent, to settle at $70.54 a barrel, while U.S. crude fell $2.12, or 3.1 percent, to settle at $66.88. On Monday, the market had its biggest rally in two years.

Beyond the plunge in oil is a deeper debate about whether some developed economies are slipping into a prolonged period of stagnation, or just coming out of the financial crises of the past five years more slowly than previously hoped.

DOLLAR GAINS

The dollar rebounded, reaching a 4-1/2-year high following the decline in oil, which has helped to lift the dollar against commodity-linked currencies.

Comments from two Federal Reserve officials who stressed the positive impact on the U.S. economy from a decline in oil prices helped to boost the greenback. The dollar index <.DXY> was up 0.8 percent at 88.634.

Gains in the dollar pressured gold, however, with spot gold dipping 1 percent to $1,198.77 an ounce.

U.S. Treasuries prices fell, pressured by Wall Street's rally and institutional investors readying for a $6 billion corporate bond deal from Amazon .

The 10-year Treasury was last off 15/32 to yield 2.296 percent.

(Additional reporting by Rodrigo Campos and Daniel Bases in New York; Editing by Catherine Evans, Dan Grebler and Andre Grenon)

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