Stocks rally on corporate earnings hope

By Herbert Lash

NEW YORK (Reuters) - Global stocks snapped back on Monday following positive comments on financial shares from an influential bank analyst who is normally bearish, while the U.S. dollar rebounded off a five-month low against the yen.

Prices of U.S. Treasuries, which had traded mixed, turned lower after the U.S. government announced a $94.32 billion (58.09 billion pounds) budget deficit in June, a record for the month.

Oil prices briefly touched their lowest level in almost two months, slipping below $59 a barrel, on lingering concerns over the global economy.

But copper prices and New York gold futures reversed initial losses to trade higher, taking their lead from the rally on Wall Street, which lifted stocks more than 2 percent.

Hopes that U.S. earnings may not be as weak as initially feared sparked the stock rally and helped the euro to rise broadly.

Wall Street analyst Meredith Whitney upgraded Goldman Sachs (GS.N) to "buy" and told New York-based business television station CNBC that bank shares were in for at least a short-term gain of 15 percent. Major financials, including Bank of America (BAC.N) and JPMorgan Chase (JPM.N), could do well in the second quarter, she said.

The S&P Financial Index .GSPF gained 6.5 percent, while Goldman rose 5.3 percent, Bank of America surged 9.3 percent and JPMorgan climbed 7.3 percent.

European shares rallied, recouping some of last week's steep losses, as banks tracked advances in U.S. financials.

"For today at least, people have optimism about the earnings season," said James Meyer, chief investment officer of Tower Bridge Advisors in West Conshohocken, Pennsylvania.

"I think what you're going to hear in the second quarter is that earnings will be better than expected and management is going to express some kind of optimism, though the top line won't be very good," Meyer said.

The Dow Jones industrial average .DJI closed up 185.16 points, or 2.27 percent, at 8,331.68. The Standard & Poor's 500 Index .SPX gained 21.92 points, or 2.49 percent, at 901.05. The Nasdaq Composite Index .IXIC added 37.18 points, or 2.12 percent, at 1,793.21.

The FTSEurofirst 300 .FTEU3 index of top European shares closed up 2.0 percent at 830.19 points.

The euro also gained after European Central Bank President Jean-Claude Trichet sounded a bit more upbeat about euro-zone growth for the rest of 2009.

The equity rally and Trichet's comments helped reverse earlier gains for the yen and dollar, which tend to rise when investors grow anxious and sell risky assets that often are financed with cheaply-borrowed dollars and yen.

"We've had quite a turnaround here as people have received some reassurance on earnings, though there are still hurdles ahead," said Camilla Sutton, senior currency strategist at Scotia Capital in Toronto.