Wall Street stocks rally after Tuesday's steep slide

REUTERS - Wall Street stocks rallied on Wednesday, lifted by a solid outlook from bellwether IBM and a strong rebound in financials a day after a steep slide, while U.S. government bond prices slid on waning safe-haven bids.

U.S. stocks jumped more than 3 percent in a relief rally, but was not enough to erase the year's biggest single-day equity losses that were set a day earlier.

Despite the U.S. rally, investors said concerns about banks lingered and European shares fell on deepening fears that several major financial institutions there would not survive the credit crisis.

The British pound bounced from 23-year lows against the dollar and trimmed losses against the euro after a Group of Seven source said sterling weakness will be discussed at the February meeting of the G7 industrialized economies.

Oil futures rose more than 6 percent to above $43 a barrel as supply cuts by member countries of the Organization of Petroleum Exporting Countries outweighed fresh evidence that a deepening global slowdown is crushing demand for energy.

Signs of mounting job losses highlighted the depth of a still worsening slowdown across the euro zone, sending two-year government bond yields in the bloc to historic lows as investors rushed to buy the safest and most liquid fixed-income assets.

But U.S. government debt prices fell as the stocks rally undercut a bid for safe-haven assets.

International Business Machines Corp contributed the most to the Dow's gain, jumping 11.5 percent -- its biggest single-day rise by percentage gain in six years.

The world's top technology services company late Tuesday posted a quarterly profit and gave a 2009 outlook that surpassed expectations.

Financial shares advanced as investors hunted for bargains in the hard-hit sector. JPMorgan Chase & Co soared 25 percent and Bank of America Corp gained almost 31 percent on news that Chief Executive Kenneth Lewis spent almost $1.2 million to buy 200,000 shares on Tuesday.

"After the news that Bank of America insiders have bought stock, there has been some aggressive buying in both the stock and call options on hopes that the shares have hit bottom," said William Lefkowitz, options strategist at brokerage firm vFinance Investments in New York.

The Dow Jones industrial average closed up 279.01 points, or 3.51 percent, to close at 8,228.10 points. The Standard & Poor's 500 Index gained 35.03 points, or 4.35 percent, to 840.24. The Nasdaq Composite Index climbed 66.21 points, or 4.6 percent, at 1,507.07.

Tough questions during a U.S. Senate hearing on Treasury secretary designate Timothy Geithner raised doubts about his confirmation, leading the Wall Street rally to stall a bit.

European shares fell for the tenth session in the last 11 as a relief rally among battered banking shares failed to offset declines in other sectors, notably energy.

The FTSEurofirst 300 index of top European shares fell 0.7 percent to close at a two-month low of 769.15, pulled down by energy stocks despite a rise in crude oil prices.

British banks pared steep losses despite concerns they may need more government aid or be nationalized.

Barclays fell 9.3 percent, after retracing losses of more than double that, while Lloyds Banking Group ended the session up 0.7 percent after sliding as much as 26 percent.

However, banking troubles left many investors unnerved. The recapitalization of the ailing Royal Bank of Scotland blew out the British deficit to its highest on record in December.

The prospect that more dramatic intervention may be needed as euro zone economies tip into recession tugged a European bank index to a 16-year low and pushed the yield on two-year German government debt to as low as 1.409 percent.

The pound last traded up 0.4 percent at $1.3949, after slumping to a session low of $1.3622, its lowest since September 1985.

"The UK financial system is in tatters," said Ron Simpson, director of currency research at Action Economics in Tampa, Florida. "We have not seen a bottom for sterling."

The dollar fell against a basket of major currencies, with the U.S. Dollar Index off 1.14 percent at 85.396. Against the yen, the dollar fell 0.43 percent to 89.41 yen.

The euro rose 1.21 percent to trade at $1.3043.

The price of the U.S. benchmark 10-year Treasury note, which moves inversely to its yield, fell 1-13/32, for a yield of 2.53 percent, nearly 50 basis points above the five-decade yield low of 2.04 percent the 10-year note hit on Dec. 18.

The U.S. benchmark 10-year Treasury note shed 1-4/32 in price to yield 2.55 percent, while the 30-year U.S. Treasury bond slid -3-31/32 in price to yield 3.16 percent.

U.S. light crude for March delivery settled at $43.55, up $2.71 in its first day as the front-month contract. London Brent crude rose $1.40 to $45.02 a barrel.

OPEC is fully enforcing its deepest ever oil supply curbs, which should be enough to boost prices, the group's president, Angolan oil minister Botelho de Vasconcelos, told Reuters.

Gold for February delivery settled down $5.10 at $850.10 an ounce in New York.