World stocks gain on banking optimism, crude rises

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By Herbert Lash

NEW YORK (Reuters) - Global stocks turned higher on Wednesday on a brighter outlook for banks on both sides of the Atlantic while oil prices snapped a six-day slide on an expected fall in U.S. crude inventories.

A higher earnings outlook from State Street Corp, the world's No. 2 custodian bank, lifted Wall Street as European shares turned positive. Banks pared losses on hopes the results from impending stress tests may not be as bad as feared.

Worries about the strength of economic recovery were offset after State Street said it would post second-quarter operating earnings of 93 cents a share, compared to forecasts of 72 cents a share.

"The earnings data provided by State Street is one of the key factors boosting the market today," said Nick Kalivas, an analyst at MF Global in Chicago.

Kalivas said investors were starting to reposition ahead of earnings season next week, and the State Street forecast reinforced expectations that banks would perform well, without exposure to trading.

U.S. banks rallied after losing heavily in recent weeks, with the BKW bank index up 2.6 percent.

The STOXX Europe 600 banking index rose 0.4 percent, reversing earlier sharp losses.

The Committee of European Bank Supervisors was expected to outline its methodology for a stress test that simulates the impact of a severe economic shock on about 100 banks in the euro zone and other countries, sources said.

Analysts also took a benign view of a slide in German manufacturing orders for the first time this year in May. They said it was mostly a technical correction as industrial production in Europe's largest economy continued to recover.

MSCI's all-country world equity index rose 0.7 percent, but its emerging market index remained in the red.

On Wall Street, the Dow Jones industrial average gained 106.87 points, or 1.10 percent, to 9,850.49. The Standard & Poor's 500 Index rose 11.89 points, or 1.16 percent, to 1,039.95. The Nasdaq Composite Index added 21.62 points, or 1.03 percent, to 2,115.50.

The euro fell from seven-week highs against the dollar amid lingering concerns about the growth outlook for the global economy and as investors scrutinized details of the financial test for European banks.

The euro was down 0.05 percent at $1.2617. Against the yen, the dollar dipped 0.31 percent at 87.28.

The dollar was down against a basket of major currencies, with the U.S. Dollar Index off 0.11 percent at 83.991.

As Wall Street rallied, safe-have assets like bonds fell.

The benchmark 10-year U.S. Treasury note was down 7/32 in price to yield 2.96 percent.

Crude oil gained. Andy Sommer, energy market analyst with EGL in Switzerland, said prices were supported ahead of two widely watched reports on weekly U.S. oil data.

U.S. light sweet crude oil rose $1.48 to $73.46 per barrel, while ICE Brent crude futures were up $1.46 cents at $72.91.

Spot gold prices increased 70 cents to $1,192.90 an ounce.

Copper fell more than 1 percent, retreating after Tuesday's rally as weaker data knocked the demand outlook and a rising dollar deterred non-U.S. investors.

Asian stocks slipped as investors worried that global growth was faltering, with the MSCI index of Asia Pacific shares outside Japan shedding almost 1 percent. Japan's Nikkei average ended down 0.6 percent.

(Reporting by Edward Krudy, Vivianne Rodrigues, Richard Leong in New York; Ian Chua, Ikuko Kurahone, Brian Gorman and Rebekah Curtis in London; writing by Herbert Lash; editing by Jeffrey Benkoe)