* U.S. stocks rise as investors snap up beaten-down shares
* Economic data, Bernanke comments stoke risk aversion bid
* Oil prices rise slightly as OPEC cuts seen taking hold
* Government debt rises as flight to quality continues
* U.S. dollar gains versus yen on bid for safe haven (Recasts with U.S. markets, changes dateline; previous LONDON)
By Herbert Lash
NEW YORK, Feb 24 (Reuters) - Wall Street rose on Tuesday, a day after U.S. stocks slid to a 12-year low, but more signs of a deteriorating economy and a warning from Federal Reserve Chairman Ben Bernanke that the U.S. recession could linger lifted the appeal of low-risk assets.
European stocks fell for a third straight session as fears persisted about the health of banking stocks and the severity of the U.S. recession, while the U.S. dollar touched a three-month high against the yen on a rise in risk aversion.
Bernanke testified to the Senate Banking Committee in Congress that the shrinking U.S. economy was at further risk from a self-reinforcing cycle of weak growth and financial market strain. For details, see [ID:nN24402092].
Failure to restore financial stability would likely extend the U.S. recession past this year, Bernanke said, which bolstered a safe-haven bid for the dollar and bonds.
"The implication of a weaker economy in the States has bigger and deeper implications across the globe," said Brian Dolan, chief currency strategist at Forex.com in Bedminster, New Jersey. "For now, the dollar remains the ultimate destination for risk aversion," he said.
Economic reports on Tuesday showed U.S. home prices plunged at a record pace in December and consumer confidence hit a new low in February.
But investors shrugged off the data and Bernanke's comments as they snapped up beaten-down shares following a fresh plunge on Monday, while reassuring results from retailer Home Depot Inc helped provide reassurance.
While the recent sharp falls offered an opportunity to snap up cheap shares, with financials among the standouts, many investors remained wary that the worst was over for equities.
"Until the market is convinced that there is a right plan in place to fix the financial system, it's just going to be more of the same. There's just no trust," said Peter Cardillo, chief market economist at Avalon Partners in New York.
The Dow Jones industrial average was up 88.89 points, or 1.25 percent, at 7,203.67. The Standard & Poor's 500 Index rose 11.23 points, or 1.51 percent, at 754.56. The Nasdaq Composite Index gained 17.75 points, or 1.28 percent, at 1,405.47.
Pessimism prevailed in Europe where the FTSEurofirst 300 index of top European shares fell 1.4 percent to end at 719.38 points, closing at its lowest since March 2003.
The broad STOXX 600 index fell 1.4 percent to 172.86 points, led lower by drug stocks.
"The markets are disenchanted by the policymakers' attempts to stabilize the financial system," said Mike Lenhoff, chief strategist and head of research at Brewin Dolphin Securities in London. "They're taking the view that the policymakers are still struggling."
Longer-dated U.S. government debt rose on the rise in risk aversion, but two-year debt was little changed on fears of growing supply.
The benchmark 10-year U.S. Treasury note rose 11/32 in price to yield 2.72 percent. The 30-year U.S. Treasury bond rose 54/32 in price to yield 3.42 percent.
Oil climbed toward $39 a barrel as investors took a fresh look at the greater-than-expected success by the Organization of Petroleum Exporting Countries in cutting supplies.
A Reuters calculation based on the consultant's figure showed OPEC delivered on 89 percent of the agreed supply cutbacks promised since last year. [ID:nLN481500]
U.S. light sweet crude oil rose 15 cents to $38.59 a barrel.
"The OPEC compliance was bigger than expected," said Oliver Jakob with Petromatrix. "Yesterday it was overlooked because of the meltdown on the Wall Street."
Bullion accelerated losses after Bernanke said inflation pressures had receded dramatically as oil and commodity prices had fallen, and slack had built up in the economy.
Spot gold prices fell $28.25, or 2.85 percent, to $964.00.
Overnight in Asia, shares fell to a three-month low and Japan's Nikkei index flirted with a 26-year low as concerns grew about the global financial system.
The Nikkei average slid 1.5 percent, threatening to breach levels that would put it at its lowest since 1982, while MSCI's index of Asia-Pacific stocks outside Japan fell 1.78 percent. (Reporting by Rodrigo Campos, Ellen Freilich, Nick Olivari, Frank Tang and Emelia Sithole-Matarise, Brian Gorman and Ikuko Kao in London; writing by Herbert Lash; Editing by Kenneth Barry)