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U.S. stocks fell for a second day as plunging Chinese shares and commodities stoked speculation that the surge in equities has outpaced the economy, while the Treasury sold notes at a higher-than-forecast yield.

Stocks in China plunged on speculation the government will curb inflows into a market that had doubled from last year’s low. The benchmark gauge, which has surged 79 percent this year, tumbled 5 percent to end a five-day, 7 percent advance that pushed valuations to the highest since January 2008.

The dollar advanced the most against the currencies of six major U.S. trading partners in almost four weeks as stocks fell and crude oil slumped, bolstering demand for the greenback as a haven.

Crude oil fell the most in three months after a government report showed an unexpected gain in U.S. supplies as imports rose and refiners cut operating rates.

Stockpiles surged 5.15 million barrels to 347.8 million in the week ended July 24, the Energy Department said. It was the biggest weekly increase since April. Supplies were forecast to decline by 1.5 million barrels, according to the median of analyst estimates in a Bloomberg News survey.

Source: Bloombeg.com

Yahoo Inc. shares rose 4 percent Friday amid speculation it will team up with Microsoft Corp. in an online search advertising partnership aimed at mounting a more serious challenge to Google Inc.

Stocks rallied around the world amid growing speculation the worst of the global recession is over and a stream of earnings that beat analysts’ estimates. Equities climbed as companies from BASF SE to MAN AG posted earnings that beat analysts’ estimates and Honda Motor Co. forecast an annual profit. Industrial output in Japan rose for the first time in six months. U.K. consumer confidence climbed to the highest level in a year.

Asian stocks climbed for a third day as Japanese Prime Minister Taro Aso doubled stimulus spending and Chinese lending jumped by a record. Treasuries rose, following three weeks of losses. The yen fell against all of the other major currencies on speculation the global financial crisis is easing.

Wells Fargo & Co., the second- biggest U.S. home lender, reported a record first-quarter profit that beat the most optimistic Wall Street estimates, sparking a rally in bank shares on speculation that the industry’s slump has ended.

Net income rose 50 percent to about $3 billion from $2 billion a year earlier. Profit of about 55 cents a share was more than double the average estimate of analysts surveyed by Bloomberg. The acquisition of Wachovia Corp., whose overdue home loans helped cut Wells Fargo’s stock price in half this year, is exceeding expectations, the statement said.