* U.S. stocks surge, bargains snapped up in wild session
* Dollar gains as weak U.S. data sparks risk aversion
* Oil slips below $70 for first time since August 2007 (Adds close of U.S. markets)
By Herbert Lash
NEW YORK, Oct 16 (Reuters) - U.S. stocks jumped in a late surge on Thursday as investors snapped up battered stocks a day after Wall Street's worst session since the 1987 crash, and oil slid below $70 a barrel for the first time since August 2007.
Gold sank to one-month lows below $800 as commodity funds and investors dumped liquid assets in favor of cash after a spate of dire U.S. economic data heightened market uncertainty.
A broad sell-off in commodities saw declines in copper, aluminum, cocoa and grains, with silver and platinum group metals extending sharp losses to multiyear lows as investors sold economically sensitive metals on recession fears.
Major European stock indexes fell about 5 percent and U.S. stocks swung wildly, shedding more than 4 percent before midday after a Federal Reserve survey showed U.S. Mid-Atlantic factory activity crashed to an 18-year low in October.
Earlier, signs of a looming worldwide economic slowdown led Japan's Nikkei <.N225> to suffer its worst one-day losses since the crash of October 1987, slumping 11.4 percent.
U.S. stocks surged in the last hour of trading, a volatile pattern seen in other recent sessions, as investors snapped up beaten-down shares a day before stock options expire.
"I think this is bargain hunting and there are some bargains out there. Some of these stocks are at historic lows," said Warren Simpson, managing director at Stephens Capital Management in Little Rock, Arkansas.
Almost all the stocks in the 30-share Dow rose after all the components were down earlier in the day.
The 6 percent decline in crude oil, which is now down more than 50 percent since a July peak of more than $147 a barrel, helped airline and retail stocks.
The S&P retail index <.RLX> jumped 4.3 percent. Wal-Mart
Stores
The Dow Jones industrial average <.DJI> closed up 401.35 points, or 4.68 percent, at 8,979.26. The Standard & Poor's 500 Index <.SPX> gained 38.59 points, or 4.25 percent, at 946.43. The Nasdaq Composite Index <.IXIC> climbed 89.38 points, or 5.49 percent, at 1,717.71.
Advancing shares beat declining stocks on the New York Stock Exchange by more than 2 to 1, reversing an earlier 3 to 1 ratio of decliners to advancers.
Wall Street's choppy session was marked by Citigroup Inc
European stocks ended steeply lower, with oil and financial companies leading the decline on fears of a global recession.
The FTSEurofirst 300 <.FTEU3> index of top European shares
unofficially ended down 5 percent at 858.41. The top drag on
the European index was Total
U.S. Treasury bills and long bonds ended weaker in erratic trading amid concerns about increased borrowing and debt supply from the government to finance its massive financial bailout.
Two-year notes
The dollar rose against the yen and euro in choppy trade as investors sought shelter in dollar-denominated assets.
The dollar rose against a basket of major currencies, with the U.S. Dollar Index <.DXY> up 0.16 percent at 82.40. The euro
Oil touched a 15-month low on rising U.S. inventories and concerns a possible recession would slow demand further.
U.S. crude
In London, front month November Brent crude
"It's still a demand story," said Amanda Kurzendoerfer, commodities analyst at Summit Energy in Louisville, Kentucky.
"We saw some very large builds in gasoline and crude oil for the second week in a row, this confirms the fact that demand is truly weakening in the United States," she said.
Fear of slowing global demand slammed commodity prices, driving copper prices down almost 8 percent to a 33-month low, while spot gold prices tumbled more than 5 percent.
Alan Ruskin, chief international strategist at RBS Global Banking in Greenwich, Connecticut, said the Philly Fed data confirmed that the meltdown in financial markets is being closely followed by a dramatic slide in the economy.
"We have seen weaker Philly Fed data but only fleetingly at the depths of recessions. Ugly data, more risk aversion," Ruskin said.
Spot gold fell to a session low of $786.80 an ounce, before bouncing back to $801.10 an ounce at midafternoon, down 5.6 percent from Wednesday's nominal close of $848.00.
The economic data overshadowed a decline in most of the short-term lending rates overnight, indicating that efforts by the central banks to loosen up credit may be working in the key short-term market. (Reporting by Ellis Mnyandu, Ellen Freilich and Steven C. Johnson in New York and Joe Brock, Peter Blackburn and Jan Harvey in London; Writing by Herbert Lash; Editing by James Dalgleish)