GLOBAL MARKETS-Oil, stocks rise after HP tempers recession fears

* U.S. stocks rise on upbeat results from HP

* Oil prices track equity performance and trim gains

* Dollar gains vs yen; risk aversion still dominant theme

* Longer-dated government debt rises; inflation pace slows (Recasts with U.S. markets, adds byline; dateline previously LONDON)

By Herbert Lash

NEW YORK, Nov 18 (Reuters) - U.S. and European shares rebounded on Tuesday, as Hewlett-Packard's reassuring results and outlook boosted sentiment, but strength in the dollar and government debt prices suggested fear of a global slowdown has not ebbed.

Oil rose after touching a 22-month low of $54.13 a barrel as it hitched onto a wider market rally, and the dollar climbed versus the yen, defying expectations of future slower growth.

Crude was buoyed as the Organization of Petroleum Exporting Countries mulled cutting output again to stem a slide of more than 60 percent since prices peaked above $147 in July.

"Any better-than-expected news out of the equity world, such as HP, could be a data point that we are not cascading into a deep recession," said Chris Jarvis, senior analyst at Caprock Risk Management in Hampton Falls, New Hampshire.

The upbeat profit forecast from HP, a Dow component, tempered worries about the global slump and uncertainty about how Congress will address the ailing U.S. automakers. The Dow jumped 1.7 percent, while Britain's top share index rose 1.9 percent and the leading index of European shares gained almost 1 percent.

HP shares surged more than 12 percent to $32.39 on the New York Stock Exchange, an advance that also underpinned shares of other technology bellwethers, including Apple Inc, up more than 2 percent and IBM, up more than 4 percent.

Before 1 p.m., the Dow Jones industrial average was up 81.32 points, or 0.98 percent, at 8,354.90. The Standard & Poor's 500 Index was up 2.36 points, or 0.28 percent, at 853.11. The Nasdaq Composite Index was down 6.58 points, or 0.44 percent, at 1,475.47.

While the HP news boosted larger components of the Nasdaq, the index edged lower as Google weighed after Yahoo CEO Jerry Yang announced he would leave his position.

The pan-European FTSEurofirst 300 index ended 0.95 percent higher at 845.37 points, but for every company whose shares rose one declined.

Oil shares added the most points to the index as crude rose. Total rose 4.6 percent, Shell added 3.9 percent and BP gained 4 percent.

Banks were broadly weaker.

British mortgage lender HBOS fell 15.4 percent as investors bet against alternatives to its takeover by Lloyds TSB, and BNP ended 5.1 percent lower on fresh talk of a capital increase. The bank declined to comment.

Analysts said volatility continued to be so high that a one-day gain meant little in the overall context.

"We could be at the early stages of a bottoming process but worldwide we are still moving in a very wide range," said John Haynes, strategist at Rensburg Sheppard Investment Management.

Bonds rose as investors bet on lower inflation after U.S. producer prices posted a record decline in October and a surprisingly large drop in UK inflation pushed the yield on two-year gilts below 2 percent for the first time on record.

The yield on short-dated euro zone government bonds marked three-year lows on growing expectations of new rate cuts.

The benchmark 10-year U.S. Treasury note rose 18/32 in price to yield 3.58 percent. The 2-year U.S. Treasury note added 1/32 in price to yield 1.18 percent.

Weak growth sent energy prices tumbling and chain store sales slipped, leading the U.S. producer price index to fall 2.8 percent. In Britain, inflation fell to 4.5 percent from September's peak of 5.2 percent, largely driven by lower gasoline prices.

Credit spreads widened as the record drops in U.S. producer prices and UK consumer prices added to worries about recession.

"The havoc played on global risk appetite is again playing through to investors moving more towards perceived safe-haven assets and currencies where the yen and the dollar remain the major recipients of those flows," said Dustin Reid, a currency strategist at RBS Greenwich Capital in Chicago.

"Stocks (may soften) with a 'sell-into-strength' mentality gripping the market," Reid said.

The dollar was down against a basket of major currencies, with the U.S. Dollar Index down 0.07 percent at 86.969. Against the yen, the dollar was up 0.68 percent at 97.02.

The euro rose 0.13 percent at $1.2662.

U.S. light sweet crude oil rose 65 cents to $55.60 a barrel.

Spot gold prices rose $3.95 to $739.85 an ounce.

Asian stocks fell as prospects of a deep global recession expectations for a financial sector recovery in 2009.

Asia-Pacific stocks outside of Japan fell 4.9 percent, bringing year-to-date losses to near 60 percent, according to an MSCI index.

Japan's Nikkei share average finished down 2.3 percent. (Reporting by Ellis, Mnyandu Gertrude Chavez-Dreyfuss, Richard Leong and Frank Tang in New York and Sitaraman Shankar, Jane Merriman, Kirsten Donovan in London; writing by Herbert Lash)