Oil's big fall boosts equities, despite rebound
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).
The FTSEurofirst 300 .FTEU3 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.
Stocks have been battered in recent weeks by rising oil prices and the accompanying worry about inflation.
"It's been a fairly oversold situation, and I wouldn't rule out a relief rally at this point," said Franz Wenzel, strategist at AXA Investment Managers, in Paris.
DOLLAR STALLS, BONDS SLIP
The dollar eased as oil prices rebounded.
The dollar index, which tracks the greenback against a basket of six major currencies, fell 0.2 percent .DXY.
Against the Swiss franc, the dollar fell 0.2 percent to 1.0318 francs and versus the Japanese unit, it was little changed at 107.36 yen.
The euro gained a quarter of a percent to $1.5709.
Euro zone government bonds fell, lifting yields, after European Central Bank President Jean-Claude Trichet said the bank would closely monitor all price developments.
Trichet said the ECB's 25 basis point rate rise to 4.25 percent last week underlined the governing council's determination to prevent second round effects of inflation.
Two-year cash yields were 3 basis points up at 4.42 percent while 10-year paper was yielding 4.46 percent, 5 basis points higher.
(Editing by Victoria Main)
