Cheaper oil fuels global stocks rally

By Herbert Lash

NEW YORK (Reuters) - Global stocks surged for a second day on Thursday as JPMorgan Chase's earnings lifted the battered banking sector and a slide in oil prices to under $130 a barrel eased fears that inflation could run amok.

Even though JPMorgan cautioned investors that the U.S. mortgage market and economy are getting worse, its stronger-than-expected results triggered a surge in other bank shares a day after Wells Fargo (WFC.N)'s earnings sparked an across-the-board rally.

A $5 drop in the price of crude added to a decline of about 12 percent from last week's record peak of $147.27 and marked the biggest 3-day loss in dollar terms since oil futures started trading in New York in 1983.

The dollar surged against the yen and erased earlier losses versus the euro as the drop in oil prices enhanced the outlook for the economy. U.S. government debt extended losses to a full point as U.S. stocks rallied and crude prices fell.

The bulk of crude oil's slide in recent days has been due to concern that a sluggish U.S. economy would cut deeply into demand for fuel in the world's biggest energy consumer.

"Consumers are being pinched between higher costs for necessities and lower real wages. The end result is falling demand almost across the board," said Peter Beutel, president of Cameron Hanover in New Canaan, Connecticut.

"In order to have a sustainable rally, what you need is oil prices coming down, and some good earnings numbers coming out," said John Praveen, chief investment strategist at Prudential International Investments Advisers LLC in Newark, New Jersey.

The Dow Jones industrial average .DJI closed up 198.99 points, or 1.77 percent, at 11,438.27. The Standard & Poor's 500 Index .SPX added 14.46 points, or 1.16 percent, at 1,259.82. The Nasdaq Composite Index .IXIC gained 27.45 points, or 1.20 percent, at 2,312.30.