Volkswacht Bodensee - Stocks extend recovery, yen slides as BOJ reassures on rates

All the major US stock market indexes were showing gains in midday trading, while London, Paris and Frankfurt all closed higher.

Oil prices jumped more than three percent on Middle East tensions and supply constraints in Libya, having fallen at the start of the week as fears of a US recession caused worries about demand.

Investors were sent scurrying after data released on Friday showed that the US economy created far fewer jobs than expected in July, fanning recession fears.

That came soon after the Federal Reserve hinted at a September interest-rate cut and following a hike to borrowing costs by the Bank of Japan for only the second time in 17 years -- sending shivers through financial markets as the yen jumped in value.

That forced many investors to unwind yen carry-trades: when they borrowed at zero or low interest rates in the yen to convert it into other currencies and buy higher yielding assets -- like US tech stocks which have soared this past year.

The unwinding triggered Monday's collapse in stocks that saw trillions of dollars wiped off valuations globally, with the Tokyo stock exchange losing over 12 percent.

BoJ deputy governor Shinichi Uchida on Wednesday sought to allay fears of further interest rate hikes, indicating that it would not raise them further during a period of high market volatility.

This dovish signal on rates sparked a nearly two percent drop in the yen, while the Tokyo stock market closed up 1.2 percent.

"This dampened fears that the BOJ would rush to raise rates further, as it was last week's bigger-than-expected hike which was seen as one of the triggers for the stock market rout," said Trade Nation analyst David Morrison.

The retreat in the yen "should take some pressure off those still exposed to the yen carry-trade, of which there are still significant numbers," added Morrison.

With the dovish signal from the BoJ and the lack of any bad economic data, investors "are realising that there may have been a bit of an overreaction to the Bank of Japan's larger than expected policy tightening last week," said City Index and FOREX.com analyst Fawad Razaqzada.

While relative calm has returned to trading floors, some observers warned investors to remain wary.

"Turnaround Tuesday truly lived up to its name with the dramatic surge in Japanese stocks" after Monday's plunge, said independent analyst Stephen Innes.

"This volatility is typical of more prolonged and chaotic market downturns, which could prompt investors to adopt a cautious stance, hold on tight, and keep the antacids ready," he added in his Dark Side Of The Boom newsletter.

In corporate news, Disney reported better revenues than anticipated in the most recent quarter and its first profit from its streaming business.

But its shares fell two percent as investors chose to focus on the fact that profits narrowed at its domestic theme parks.

- Key figures around 1530 GMT -

New York - Dow: UP 0.9 percent at 39,359.87 points

New York - S&P 500: UP 1.3 percent at 5,309.82

New York - Nasdaq Composite: UP 1.5 percent at 16,616.27

London - FTSE 100: UP 1.8 percent at 8,166.88 (close)

Paris - CAC 40: UP 1.9 percent at 7,266.01 (close)

Frankfurt - DAX: UP 1.5 percent at 17,615.15 (close)

EURO STOXX 50: UP 2.0 percent at 4,668.88 (close)

Tokyo - Nikkei 225: UP 1.2 percent at 35,089.62 (close)

Hong Kong - Hang Seng Index: UP 1.4 percent at 16,877.86 (close)

Shanghai - Composite: UP 0.1 percent at 2,869.83 (close)

Dollar/yen: UP at 147.46 yen from 144.68 yen on Tuesday

Euro/dollar: UP at $1.0934 from $1.0933

Pound/dollar: UP at $1.2721 from $1.2691

Euro/pound: DOWN at 85.95 pence from 86.12 pence

Brent North Sea Crude: UP 3.1 percent at $78.85 per barrel

West Texas Intermediate: UP 3.6 percent at $75.81 per barrel

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J.Marty--VB