Oil's big fall boosts equities, despite rebound

By Jeremy Gaunt, European Investment Correspondent

LONDON (Reuters) - Oil prices firmed on Wednesday after Iran tested long- and medium-range missiles, but its tumble the previous session -- the largest since the 1991 Gulf war -- helped boost global equities and lift sentiment.

Wall Street looked set to open flat.

Iran's test-firing of missiles, including one which it has previously said could reach Israel and U.S. bases in the region according to state media, weighed on the dollar and triggered a bounce in oil.

The oil rise, however, followed a more than $5 fall on Tuesday that in dollar terms was the biggest daily fall since the U.S.-led Operation Desert Storm to remove Iraqi troops from Kuwait in 1991.

U.S. light crude was up about $1.80 on the day, but its price of just over $138.50 a barrel was a far cry from last Thursday's record high of $145.85.

As a result, equities rallied, boosted also by stronger-than-expected results posted overnight by U.S. aluminum producer Alcoa (AA.N: Quote, Profile, Research, Stock Buzz).

The FTSEurofirst 300 index of top European shares was up 1.3 percent and Japan's Nikkei average .N225 earlier closed up 0.2 percent.

U.S. Federal Reserve Chairman Ben Bernanke also lifted sentiment when he said on Tuesday that the U.S. central bank may keep an emergency lending facility for big Wall Street firms open longer than it initially intended.