Rebound in oil prices boosts shares; dollar slumps

By Sam Forgione

NEW YORK (Reuters) - Oil prices rose on Wednesday on optimism that demand could improve in Asia and after data showed a drop in U.S. crude oil inventories, helping boost a measure of stock markets worldwide.

The outlook for oil demand in Asia was boosted by news of an unexpected jump in Japan's core machinery orders in October and by reforms aimed at encouraging imports in China, including of energy-intensive machinery.

U.S. crude was supported by data showing a surprise 1.9-million-barrel fall in U.S. crude inventories to 488 million barrels last week. The rise in oil prices came after a brutal sell-off that sent prices to their lowest in nearly seven years on Tuesday.

Brent crude was last up 40 cents at $40.66 a barrel. U.S. crude was last up 42 cents at $37.93 per barrel.

While many investors expect oil to fall below 2008 lows due to a global supply glut, the rebound helped U.S. shares, which were also boosted by reported merger talks between Dow Chemical and DuPont. Dow Chemical was last up over 11 percent while DuPont was last up 13 percent.

"We have been in a fairly significant market swoon in energy recently, so I think there is some stability here in energy prices which is helping things," said Macrae Sykes, analyst at Gabelli & Co Inc in Rye, New York. He said that could be providing some positive sentiment to stocks in the short term.

MSCI's all-country world equity index, which tracks shares in 45 nations, was last up 0.54 percent, at 403.32.

The Dow Jones industrial average was last up 152.33 points, or 0.87 percent, at 17,720.33. The S&P 500 was up 10.38 points, or 0.5 percent, at 2,073.97. The Nasdaq Composite was off 0.13 percent at 5,091.62.

Europe's broad FTSEurofirst 300 index was last down 0.33 percent, however, at 1,433.07.

The U.S. dollar slumped as commodity-linked currencies reversed steep losses with the recovery in oil prices, while the euro and yen both hit one-month highs versus the dollar. Analysts still expect the dollar to rise in the coming weeks.

The dollar index, which tracks the greenback versus a basket of six currencies, was last down 0.83 percent at 97.661.

"Most investors would probably continue thinking that the euro should be trending lower, especially with the (expected) Fed hike next week," said Charles St-Arnaud, senior strategist at Nomura Securities in London, in reference to the Federal Reserve.

U.S. Treasury debt yields rose in thin volume, as the rally in oil buoyed market sentiment.

Benchmark 10-year Treasury notes were last down 7/32 in price to yield 2.26 percent, from a yield of 2.24 percent late Tuesday.

Gold initially rose 1 percent, supported by dollar softness, but investors remained cautious ahead of the anticipated Fed rate rise next week and spot gold reversed course to be down $2.72 to $1,071.59 an ounce.

(Additional reporting by Tanya Agrawal, Gertrude Chavez-Dreyfuss and Dion Rabouin in New York and Clara Denina in London; Editing by James Dalgleish)