Oil gains, dollar falls after strong data

The data boosted risk appetite as it pointed to steady improvement in the economy, but critical remarks by a Federal Reserve official caused investors to sell financial shares and snuff an early rally on Wall Street.

The major U.S. equity indexes had risen about 1 percent as the data and strong results from Ford Motor Co spurred broad-based gains and soothed worries over the strength of the recovery.

But Jon Greenlee, associate director of the Federal Reserve's Division of Banking Supervision and Regulation, said U.S. banks are at risk of sizable new loan losses, particularly on commercial property.

Some banks may not have sufficient capital to fully cushion against setbacks, Greenlee said in testimony before a congressional subcommittee meeting in Atlanta.

Questions about whether the seven-month rally in U.S. equities has run out of steam also weighed on sentiment. The Fed is set to begin a two-day policy meeting on Tuesday.

"The market has turned from buying on dips to selling on rallies," said Terry Morris, senior vice president and senior equity manager for National Penn Investors Trust Co in Reading, Pennsylvania.

The Dow Jones industrial average <.DJI> was up 76.71 points, or 0.79 percent, at 9,789.44. The Standard & Poor's 500 Index <.SPX> was up 6.69 points, or 0.65 percent, at 1,042.88. The Nasdaq Composite Index <.IXIC> was up 4.09 points, or 0.20 percent, at 2,049.20.

The economic data gave the oil markets a shot in the arm, said Phil Flynn, an analyst at PFGBest Research in Chicago.

"Oil futures are still trading in the recent range here, but the market is sensing that if manufacturing continues to be strong that will translate into higher demand for oil," Flynn said.