* Oil surges 2 pct to June highs
* U.S. stocks gain after two days of losses
* U.S. services sector surges to 11-month high
* European markets rattled by ECB "taper" talk
(Updates with U.S. afternoon trading)
By Lewis Krauskopf
NEW YORK, Oct 5 Oil prices surged on Wednesday
after a report showed a drop in U.S. crude stockpiles, fuelling
energy shares and helping lift Wall Street along with
encouraging economic data.
In Europe, bond yields jumped while the pan-European STOXX
index fell 0.6 percent, with markets rattled by the
prospect of the region's central bank eventually winding down
its bond-buying stimulus.
MSCI's gauge of stocks across the globe
climbed 0.3 percent after two sessions of declines.
U.S. services sector activity rebounded to an 11-month high
in September, an encouraging sign for economic growth.
"If there had been any concern about some sort of imminent
recession anytime soon a lot of this data seems to debunk that
thesis," said Jeff Weniger, senior strategist at BMO Wealth
Management in Chicago.
The Dow Jones industrial average rose 126.55 points,
or 0.7 percent, to 18,295, the S&P 500 gained 11.89
points, or 0.55 percent, to 2,162.38 and the Nasdaq Composite
added 37.40 points, or 0.71 percent, to 5,327.06.
The energy sector gained 1.7 percent.
U.S. stocks have been pressured this week by concerns over
Britain's exit from the European Union and expectations of a
Federal Reserve interest rate increase in the coming months.
Chicago Fed President Charles Evans said he would be "fine"
with raising U.S. interest rates by year-end if U.S. economic
data continued to come in firm.
Traders see a 64-percent chance the Fed will hike at its
December meeting, according to the CME FedWatch website.
Financial shares, which tend to benefit in a rising rate
environment, climbed 1.6 percent.
"People are certainly waiting for that inevitable interest
rate rise by the Fed, but I think they're just not sure if
that's a sign that things are better and earnings are likely to
improve, or a reason for people to sell stocks because rates are
rising," said Rick Meckler, president of LibertyView Capital
Management in Jersey City, New Jersey.
Oil prices rose to their highest since June after the fifth
unexpected weekly drawdown in U.S. crude
Speculation about the Organization of the Petroleum
Exporting Countries' plan to cut production at its meeting next
month also supported the market.
Benchmark Brent crude was up 2 percent, at $51.90 a
barrel, while U.S. West Texas Intermediate crude rose 2.3
percent at $49.82 a barrel.
Euro zone bond yields soared amid concerns the European
Central Bank might reduce its asset purchases before the program
finally ends. A Bloomberg article on Tuesday cited sources as
saying the ECB would probably wind down the monthly 80-billion
euro ($90 billion) scheme gradually.
Italy's 10-year bond yield rose to 1.38 percent,
its highest level since late June, according to Reuters data.
Germany's 10-year Bund yield - the euro zone benchmark - rose
more than 8 bps to hit zero for the first time in a fortnight
"I am surprised at the reaction, but it's just this notion
that the ECB may be discussing tapering one day that has upset
the market," said ING rates strategist Benjamin Schroeder.
Benchmark U.S. 10-year notes were last down
11/32 in price to yield nearly 1.72 percent, up from 1.68
percent late Tuesday.
The dollar was down 0.06 percent against a basket of
currencies in choppy trading.
Sterling rose 0.2 percent against the dollar, after
dipping below $1.27 and hitting a fresh three-decade low against
the greenback earlier in the session.
(Additional reporting by Barani Krishnan in New York and Nigel
Stephenson and Dhara Ranasinghe in London; Editing by Susan
Thomas and Nick Zieminski)