U.S. data buoys stocks, oil rises above $118

GLOBAL MARKETS-U.S. data buoys stocks, oil rises above $11808.27.08, 9:00 AM ET

United States - * Durable goods data lifts stocks, Wall Street prospects

* Dollar falls back from 2008 highs
* Oil rises above $118 a barrel

(Updates throughout with moves after U.S. data)
By Jeremy Gaunt, European Investment Correspondent

LONDON, Aug 27 (Reuters) - Surprisingly robust U.S. durable goods data lifted European stocks out of negative territory on Wednesday and set up the prospect of a positive start on Wall Street.
Oil prices climbed for the third day in a row, however, and the dollar slipped back from recent highs.
New orders for long-lasting U.S. manufactured goods jumped a surprising 1.3 percent in July on strong civilian aircraft sales, while a gauge of business investment also rose unexpectedly, the U.S. government reported.
This added some positive sentiment to stock markets weakened for most of the day by earnings concerns, worries about banking stress, Western tensions with Russia over Georgia and a gloomy outlook for the world economy.
"(The data) bodes well for capital spending in the third quarter. It doesn't seem like the credit crisis is impacting capital spending, said Matthew Moore, economic strategist at Banc of America in New York.
MSCI's main gauge of world stocks was higher on the day but still trading around a two-year low.
It has lost more than 17 percent so far this year, on track for one of its worst annual performances in more than 20 years.
European shares reversed course after the data after being deep in the red. The FTSEurofirst index of pan-European shares was flat having earlier been almost 1 percent lower on the day.
Banking stocks were weighing. "Financials have been under pressure due to concerns about the speed of the economic slowdown and worries that there is still further fallout from the subprime credit crunch issues," said Henk Potts, equity strategist at Barclays (nyse: BCS - news - people ) Stockbrokers.
Societe Generale noted that troubles at U.S. mortgage agencies Freddie Mac (nyse: FRE - news - people ) and Fannie Mae (nyse: FNM - news - people ) were a threat to U.S. commercial banks, which it estimated hold some $1 trillion in the agencies' debt, or 9 percent of the banks' balance sheets.
Earlier, Japan's Nikkei average dipped 0.2 percent, led lower by exporters such as Honda (nyse: HMC - news - people ) and property shares which dropped after the collapse of another builder.
Sohken Homes filed for protection from creditors with 33.8 billion yen ($308 million) in debt, the latest in a string of collapses in the property and construction sectors.
GUSTAV LIFTS OIL, DOLLAR SLIPS
Barclays' Potts said stock investors were still concerned about the high price of oil and its effect on inflation and sentiment despite the price of crude now being well off its recent, all-time highs.
Oil rose for a third straight session, above $118 a barrel, on worries that Tropical Storm Gustav will threaten oil and natural gas installations in the Gulf of Mexico.
Crude for October delivery rose $1.82 to $118.09 a barrel, after settling up $1.16 on Tuesday.
Gustav was downgraded to a tropical storm on Wednesday after it slammed into Haiti on Tuesday, but forecasters expect wind speeds to regain hurricane force, and it could be the first major storm to threaten oil and gas production in the Gulf of Mexico since 2005.
The euro and yields on euro zone government bonds rose to session highs after Bloomberg quoted the European Central Bank Governing Council Member Alex Weber as saying talk of a euro zone interest rate cut is "premature".
"The market became too confident that rate cuts were on the card," said a bond trader in London.
Weber, widely considered to be among the most 'hawkish' and influential of ECB policymakers, said there is no scope for rate cuts and hinted that there might even be room to raise them if the economic outlook improved toward the end of the year.
The euro jumped on the headlines and was up 0.6 percent at around $1.4737.
The dollar index, a measure of the greenback's value against six major currencies, fell 0.5 percent on the day to 76.87, having hit a 2008 high on Tuesday at 77.619.
Euro zone government bond yields climbed after the Weber comments promoted a sell off.
The interest rate-sensitive two-year Schatz yield was up 11 basis points at 4.092 percent, while the 10-year Bund was up 6 basis points at 4.172 percent. (editing by Mike Peacock)