Oil slips anew as U.S. stocks rise on Cisco results

By Herbert Lash

NEW YORK (Reuters) - Oil slid again on Wednesday to almost $117 a barrel, helping U.S. stocks rebound and lifting the dollar to a seven-month high against the yen, while European equities rose on a rally in bank stocks.

Demand for the euro fell ahead of a European Central Bank meeting on Thursday, when euro zone policy-makers are widely expected to hold the ECB's key lending rate at 4.25 percent.

Against a backdrop of data painting a bleak economic picture amid rapidly falling oil prices, investors have sharply trimmed bets of the ECB raising interest rates any time soon.

Rising U.S. crude inventories provided more evidence of a demand slowdown in the world's top consumer that's chopped $30 off the price of oil since it set an all-time high in July.

Oil's sharp fall helped overshadow the deep morass in housing, made visible again on Wednesday when home finance company Freddie Mac (FRE.N) posted an unexpectedly wide loss and led U.S. stocks lower early in the session.

Stronger-than-expected quarterly results at Cisco Systems Inc (CSCO.O) and the company's comments that it expects the weak economic environment to be relatively short lived helped U.S. stocks later rebound.

"People were encouraged by what Cisco had to say. There's a different mind-set, even though the Freddie Mac news was pretty bleak," said Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams in New York.

"All big-cap tech is seeing strength. What is also bullish today is the talk that Microsoft might be buying back $20 billion worth of stock. That's a very good sign."

Financial shares slid after Freddie Mac posted its fourth straight quarterly loss and equity investors braced for more fallout from the prolonged U.S. housing slump.

Freddie Mac said it would set aside twice as much money for bad loans and slash its dividend at least 80 percent.

Freddie Mac's shares fell more than 19 percent, while those of bigger rival Fannie Mae (FNM.N) declined nearly 15 percent.

The two companies, which hold or guarantee nearly half the $12 trillion in outstanding U.S. mortgages, have been pummeled by the housing downturn. The S&P 500 financial index .GSPF was off nearly 1 percent.

"Freddie Mac was not a vitamin pill this morning. It clearly wasn't good news," said Stephen Massocca, co-chief executive at San Francisco-based investment bank Pacific Growth Equities.

"When you lower the dividend, people get out of the stock for that reason."

The Dow Jones industrial average .DJI added 40.30 points, or 0.35 percent, at 11,656.07. The Standard & Poor's 500 Index .SPX rose 4.31 points, or 0.34 percent, at 1,289.19. The Nasdaq Composite Index .IXIC gained 28.54 points, or 1.21 percent, at 2,378.37.