U.S. stocks curb gains as dollar lifts oil

NEW YORK (Reuters) - A decline in the dollar spurred a rebound in oil prices on Wednesday, while early gains in U.S. stocks fizzled.

Treasuries traded lower after U.S. data showed only modest slowing in consumer spending growth and tame inflation at the producer level.

Crude oil futures were up 2.88 percent, or $2.63, to $93.80 a barrel after plunging 3.7 percent on Tuesday, the biggest one-day percentage drop since August 6.

Oil, which is priced in dollars, became cheaper for overseas buyers as the dollar fell against the euro, stirring increased demand.

Gold, which is also priced in U.S. currency, was trading higher on a weaker greenback. The most-active December gold contract was up 1.93 percent at $814.4 an ounce.

Stocks opened sharply higher on news that Bear Stearns would report a smaller loss on assets linked to bad mortgage bets than Wall Street had feared. But the optimism was undercut as oil futures crept higher and investors doubted the market would sustain Tuesday's sharp recovery.

On Tuesday, the Nasdaq had its biggest gain in more than four years on Tuesday, while the Dow Jones industrial average rose more than 300 points.

The Dow Jones industrial average on Wednesday was down 19.75 points, or 0.15 percent, at 13,287.34. The Standard & Poor's 500 Index was down 4.57 points, or 0.31 percent, at 1,476.48. The Nasdaq Composite Index was down 22.54 points, or 0.84 percent, at 2,651.11.

In Europe, shares rose for the third day in a row, led by British bank HSBC, which reported a rise in profits. The pan-European FTSEurofirst 300 index of top European shares rose 0.44 percent, or 6.63 points, to close at 1,522.70.

Asian stocks ended sharply higher, following the U.S. market's rally from Tuesday. In Tokyo, the benchmark Nikkei average rose 372.93 points to end at 15,499.56, snapping an eight-day losing streak. But it is still only 3.4 percent above this year's low of 14,988.77 marked on Tuesday.

DOLLAR DOWN

The dollar was down against a basket of major currencies as measured by the U.S. Dollar Index, which fell 0.06 percent to 75.834.

The dollar slipped as worries about the struggling U.S. housing sector and lingering credit problems weighed on sentiment, extending the currency's long-term trend downward.

Data showing that U.S. retail sales growth slowed slightly in October, in line with expectations, and flat producer prices supported dealers' decisions to continue pushing the dollar toward record lows against the euro.

The euro rose 0.4 percent to $1.4656, within sight of record highs of $1.4752 reached last week. Against the Swiss franc, the dollar fell to the lowest level since April 1995, at 1.1178 francs before recovering to trade at 1.1244, still down 0.2 percent on the day.

The euro gained 0.9 percent to 163.37 yen, pulling away from a two-month low of 158.66 yen hit on Tuesday. The dollar was up 0.5 percent to 111.50 yen.

Thus far, global growth has held up fairly well outside the United States, but the report added to uncertainty about global economic growth in the wake of this summer's crisis stemming from the U.S. subprime mortgage market.

TREASURIES FALL

U.S. Treasuries slid as signs of stability on the stock market dimmed the allure of safe-haven government bonds.

The debt market has been heavily dependent for direction on stocks, which traders see as a key gauge of risk appetite among investors after the summer credit crunch.

The day's main economic releases showed producer price inflation and retail sales were both subdued in October but had no major effect on Treasuries, which might normally adopt a firmer tone on such figures.

Instead, dealers watched stocks and contemplated the possibility that a halt in Wall Street's recent slide would undermine Treasuries, which have benefited from uncertainty surrounding the hard-hit financial sector.

The benchmark 10-year U.S. Treasury note fell 3/32 in price to 99-23/32 to yield 4.283 percent. The yield, which moves inversely to price, was up from Tuesday's 4.27 percent.

(Additional reporting by Jennifer Coogan, Ellis Mnyandu, Caroline Valetkevitch, Eriko Amaha, Nick Olivari, Kevin Plumberg and Burton Frierson; Editing by Jonathan Oatis)