By Herbert Lash
NEW YORK (Reuters) - Global stocks rebounded on Tuesday onrelief over better-than-expected profit reports by two WallStreet banks, but the dollar weakened ahead of a FederalReserve meeting where U.S. interest rates are likely to beslashed.
U.S. and European stocks also jumped on hopes a Fed ratecut would help ease a global credit crisis that on Sundayclaimed investment bank Bear Stearns, a fall that had causedequity markets to tumble and investors to seek safe-havenassets.
The Dow industrials on Tuesday jumped close to 300 points,with all major U.S. stock indexes rising more than 2 percent.In Europe, benchmark indexes closed up more than 3 percent.Rises in financial shares drove gains on both sides of theAtlantic.
Rising stocks sapped the safe-haven bid for governmentdebt, and oil prices rose on expectations a Fed rate cut willfurther weaken the U.S. dollar and spur investor demand forcrude.
Gold pared gains after rising 1 percent on the weakerdollar as investors waited for the Fed to establish a clearermarket direction. A Fed statement is expected after 2:15 p.m.(18.15 p.m. British time).
Earnings from Goldman Sachs Group Inc's and Lehman BrothersHoldings Inc topped Wall Street estimates, reassuring investorsthat U.S. financial companies are holding up despite marketturmoil caused by the subprime mortgage crisis and a slowingU.S. economy.
"The numbers that came out on Goldman Sachs and Lehman,while not great, seem to suggest that there could be light atthe end of the tunnel," said Matt Kaufler, portfolio managerand analyst at Clover Capital Management in Rochester, NewYork.
Expectations that regulators will ease restrictions on topU.S. home financing companies Fannie Mae and Freddie Mac andencourage them to boost spending in the slumping U.S. housingmarket also helped ease investor jitters.
Shares of Fannie were up 19.81 percent at $26.61, whileFreddie Mac shares were up 19.3 percent at $24.60.
The Dow Jones industrial average jumped 2.14 percent to12,228.78 and the Standard & Poor's 500 Index 2.60 percent, to1,309.83. The Nasdaq Composite Index gained 2.27 percent to2,226.38.
In Europe, banking stocks that have been hammered in recentdays also led the rebound, UBS up 14.4 percent, Credit Agricoleup 9.3 percent and Deutsche Bank up 6.3 percent.
The FTSEurofirst 300 index of top European shares closed up3.38 percent at 1,240.30 points.
The strong rebound was echoed elsewhere in Europe:Germany's DAX index rose 3.35 percent, UK's FTSE 100 index wasup 3.41 percent and France's CAC 40 gained 3.54 percent.
The FTSEurofirst 300 index is still down about 19 percentso far this year, hit by worries over the credit crisis as wellas fears that the U.S. economy could tip into recession.
Most Asian stock markets closed higher, with MSCI's measureof Asian stocks outside Japan rising more than 1 percent. HongKong's main index climbed 1.4 percent and Japan's Nikkei 225closed up 1.5 percent.
RATE CUT EXPECTATIONS
Expectations of interest rate cuts deepened after JPMorganChase agreed to purchase stricken rival Bear Stearns for thefire sale price of $2 a share, and an emergency Fed move onSunday to cut its discount interest rate by a quarterpercentage point.
The dollar, which sold off on Monday, remained underpressure, although it advanced against the yen as the resultsat Goldman and Lehman eased investor concerns about the
"There were still fears lingering about possible liquidityproblems in banks such as Lehman Brothers. But given the bankreleased better-than-expected results, in combination withanother solid report by Goldman, the dollar bounced backagainst the yen," said Mark Meadows, a market strategist atTempus Consulting in Washington.
"But the rate decision later today is still weighing on thegreenback against most other currencies."
Oil rebounded. U.S. crude rose by $1.45 to $107.13 abarrel, while London Brent was $2.29 higher at $104.04.
The U.S. oil contract hit a record high of $111.80 onMonday before sliding more than 4 percent, the biggest one-daypercentage drop in more than seven months.
"If the Fed move results in further dollar weakness, itshould be very short-term bullish for oil," said Mike Wittner,oil analyst at Societe Generale.
Gold pared earlier gains. Bullion rose as high as $1,012.30against $1,001.00/1,001.80 late in New York on Monday.
U.S. benchmark 10-year Treasury notes traded a full pointlower and euro-zone government bond prices tumbled as WallStreet rallied and inflation worries in Europe took the edgeoff speculation about a near-term rate cut by the EuropeanCentral Bank.
Benchmark U.S. 10-year notes were traded 1-2/32 lower inprice to yield 3.43 percent from 3.30 percent late on Monday.Two-year notes were 9/32 lower in price for a yield of 1.49percent from 1.35 percent.
Investors in Europe were less sure about a rate cut by theECB after a media report that the bank was unlikely to cutrates anytime soon.
The June Bund future was down 63 ticks on the day at117.60, after hitting a session low of 117.43.
Euribor interest rate futures were down as much as 12.5ticks across the 2008 strip, handing back more than the sharpgains made on Monday.
(Editing by Leslie Adler)
