GLOBAL MARKETS-US stocks rebound, dollar gains on risk aversion

Fri Feb 5, 2010 5:10pm EST

* U.S. equities rebound at day's end on bargain hunting

* Dollar rallies vs yen on rising risk aversion

* Euro touches lowest against the dollar since May

* Bonds rise in flight to quality in two-day rally

* Oil falls toward $71 a barrel amid commodity sell-off (Updates with close of U.S. markets, changes byline)

By Herbert Lash

NEW YORK, Feb 5 (Reuters) - The U.S. dollar gained on Friday as investors dumped risky assets amid worries about fiscal problems in weak euro zone economies, while U.S. stocks rebounded at day's end on a spurt of bargain hunting.

World stock markets slid to three-month lows as worries intensified over growing investor concern that Portugal, Spain and Greece will struggle to control their budget deficits.

Commodity prices also plunged, with both gold and copper falling to three-month lows. The Reuters-Jefferies CRB index .CRB of 19 mostly U.S.-traded commodity futures ended down almost 9 percent year-to-date after its fourth consecutive week of declines due to a robust dollar and economic uncertainty.

U.S. stocks erased a midday drop of about 1 percent to end flat to slightly higher, closing out a volatile week punctuated by mixed signals from the labor market and anxiety over Europe. For details see: [ID:nN05164142]

For the week, the Dow ended 0.6 percent lower, the S&P fell 0.7 percent and the Nasdaq slipped 0.3 percent.

MSCI's .MIWD00000PUS all-country world index fell 1.3 percent for the day and ended the week lower 2.4 percent.

The major U.S. indexes turned positive just before the close as investors snapped up technology and materials stocks -- two of the worst performers during the pullback.

"It's bargain hunting in an oversold market," said Cleveland Rueckert, market analyst at Birinyi Associates in Samford, Conneticut. "At least in short-term selling it was overdone."

U.S. and European shares fell after an early interpretation of a U.S. labor market report for January was another sign of a difficult jobs recovery.

The U.S. economy shed 20,000 non-farm payroll jobs for the month and the unemployment rate unexpectedly fell to a five-month low of 9.7 percent. Analysts had expected a gain in jobs and a slight rise in the jobless rate. [ID:nN04115255]

The Dow Jones industrial average .DJI closed up 10.05 points, or 0.10 percent, at 10,012.23. The Standard & Poor's 500 Index .SPX rose 3.08 points, or 0.29 percent, at 1,066.19. The Nasdaq Composite Index .IXIC added 15.69 points, or 0.74 percent, at 2,141.12.

"An unemployment rate below 10 percent is not a bad sign - it was generally mixed jobless (data)," said Michael Widmer, analyst at BofA Merrill Lynch. "Sovereign debt remains a critical issue right now ... but it's overall a concern about the strength of economic recovery."

U.S. Treasuries rose as stocks fell and the U.S. payrolls report kept inflation concerns at bay. [ID:nN05140330]

The benchmark 10-year U.S. Treasury note US10YT=RR gained 11/32 in price to yield 3.57 percent.

The gains marked the second day of a rally in U.S. government debt that was fueled by weakness in global equities markets and a flight to quality.

Oil slid 2.7 percent to almost $71 a barrel as the contract for March crude hit record trade daily volumes, extending losses in the biggest three-day percentage loss since September.

U.S. crude oil for March delivery CLc1 settled at $71.19 a barrel after reaching a session low of $69.50. U.S. crude on Thursday closed down 5 percent.

London ICE Brent for March LCOc1 settled at $69.59 a barrel, down $2.54.

The U.S. dollar and yen gained as persistent worries about the euro zone's fiscal woes led investors away from risky assets and sent the euro to an 8-1/2 month low against the greenback. [ID:nN05584092]

"The dollar remains the focal point for both the equity and commodity markets as Greece's debt issues put pressure on the Eurozone," Chris Jarvis, senior analyst, Caprock Risk Management, Hampton Falls, New Hampshire. (Reporting by Angela Moon, Gertrude Chavez-Dreyfuss and Emily Flitter in New York; Christopher Johnson in London; writing by Herbert Lash; Editing by Andrew Hay)