(Recasts with U.S. markets, changes byline, dateline, previous LONDON)
By Herbert Lash
NEW YORK, Oct 14 (Reuters) - Oil prices rose and global stocks soared for a second day on Tuesday after Washington joined European plans to pump billions of dollars into banks in a concerted effort to turn back a worldwide financial crisis.
Commodity prices jumped and the euro rose as investors bet the cash infusion would provide markets the means to start climbing out of the worst crisis since the Great Depression.
Investors unwound panic trades made last week when fears swept financial markets that the world was heading into a prolonged global recession.
U.S. Treasury debt prices added to steep losses after the latest news on the bank rescue plan spurred a rally in stocks and curbed demand for safe-haven government debt. Some investors sold U.S. Treasury paper to buy euro zone bonds, traders said.
The government moves, aimed at loosening drum-tight credit markets worldwide, began to show effect. The interbank cost of borrowing dollars for three months posted its biggest decline since March, according to the British Bankers Association.
"This is what traders wanted to see -- bank balance sheets being shored up -- and the best way to do it is with a direct capital infusion," said Greg Salvaggio, vice president of trading at Tempus Consulting in Washington.
"It's immediate and it should help lending conditions ease," Salvaggio said.
The Nasdaq fell as concerns about a recession and the third-quarter corporate profit outlook tempered optimism over the bank rescue plan.
Shortly after 10 a.m. (1400 GMT), the Dow Jones industrial average <.DJI> was up 76.54 points, or 0.82 percent, at 9,464.15. The Standard & Poor's 500 Index <.SPX> was up 8.27 points, or 0.82 percent, at 1,011.62. The Nasdaq Composite Index <.IXIC> was down 21.60 points, or 1.17 percent, at 1,822.65.
European stocks rose sharply. The pan-European FTSEurofirst 300 index <.FTEU3> was up 3.1 percent at 966.72, adding to its biggest ever daily percentage rise on Monday when it jumped more than 10 percent.
"The bank plan is another step in the right direction. The markets have been looking for it and they're reacting positively to it," said Jim Awad, chairman of W.P. Stewart & Co in New York.
"I expect it to add ... stability to the financial and credit markets, but it's important to not get overly euphoric because we still have to enforce it," he added.
Early in New York, the euro was up almost 1 percent at
$1.3690
The dollar was down 0.3 percent against the U.S. Dollar Index <.DXY>, a basket of major currencies, at 81.278.
Against the yen, the dollar
Oil initially rose more than $3, extending the previous session's 4 percent gain, as euphoria over government moves to shore up banks gave way to expectations of a global recession.
U.S. light sweet crude oil
Gold and other precious metals also initially rose as the bank stabilization plans sparked a rally in commodities, with platinum up more than 6 percent and silver climbing 4 percent.
But analysts said the rally in equities curbed interest in the precious metal as a haven from risk, curbing its rise.
Spot gold prices
Japan's Nikkei stock index <.N225> gained more than 14 percent on Tuesday. Japanese markets were closed on Monday for a national holiday. MSCI's main world stock index <.MIWD00000PUS> was up 3.8 percent after plunging 20 percent last week. (Reporting by Ellis Mnyandu, Ellen Freilich and John Parry in New York and Joe Brock and Jan Harvey in London; Writing by Herbert Lash; Editing by James Dalgleish)