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RPT-GLOBAL MARKETS-Firm dollar halts charge into stocks, commods

Published 10/18/2010, 03:26 AM
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* Dollar index pulls up from 10-month trough

* European stocks lower, track declines in Asian

* Oil, gold weighed down by dollar's rise

* Bernanke cements easing view, offers no specifics

* IBM, Citigroup earnings, U.S. industrial output data eyed

By Vikram S.Subhedar

HONG KONG, Oct 18 (Reuters) - The battered dollar rose on Monday, edging further away from a 10-month low, while Asian stocks pulled back from a two-year high as markets awaited details of a widely expected easing in U.S. monetary policy.

Major European stock markets opened lower, with Britain's FTSE 100 <.FTSE> down 0.3 percent, France's CAC 40 <.FCHI> down 0.5 percent and Germany's DAX <.GDAXI> falling 0.4 percent.

Federal Reserve chief Ben Bernanke cemented expectations on Friday of more U.S. stimulus to fend off deflation, prompting a reversal of trades that had been pushing the dollar lower and most Asian stocks higher for weeks. [ID:nTOE69E02T]

The prospect of the Fed pumping billions of dollars into its economy has sparked huge capital flows into high-yielding emerging markets, pushing up their currencies and prompting some countries to take steps to control the inflows from destabilising their economies. The Fed reviews policy on Nov. 2-3.

Rising global currency tensions, pitting the developing world against the developed world, will be the focus of a meeting of G20 finance leaders in South Korea, starting on Friday.

Estimates of Asian central bank intervention [ID:nSGE69H02B]

Japan Reuters Tankan: http://link.reuters.com/wyt48p

Australia economic suite: http://link.reuters.com/syh88p

Asian stocks outside Japan <.MIAPJ0000PUS>, which have rallied steadily since last August, fell 1.4 percent on Monday.

The dollar index <.DXY> rose 0.5 percent, as traders covered some short-positions and as investors bet the Fed would be successful in generating more inflation. The index is still down more than 6 percent following a sell-off from a September high.

"Expectations of QE2 are fully priced in for November or December. Questions remain exactly on the extent of that QE2," said Sue Trinh, senior currency strategist at Royal Bank of Canada, referring to a second round of quantitative easing.

"Overall, with the downside and the bad news pretty much fully factored in for the U.S. dollar, the risk is towards more of a dollar squeeze, especially given how skewed positioning is ultimately," Trinh added.

Japan's Nikkei average <.N225> pared all its gains to close flat, pressured by the yen, which stayed near a 15-year high against the dollar, and as investors turned cautious ahead of U.S. banks reporting earnings.

The U.S. earnings season picks up steam this week, with 109 S&P 500 companies and 11 Dow components scheduled to report results, with investors closely watching for corporate profitability to sustain the recent rally in stocks.

Among the companies scheduled to report later on Monday are Citigroup , IBM and Apple .

DOLLAR REBOUND

The greenback extended a rebound that started late last week, with the euro retreating further from an eight-month high and the Australian dollar backing off from Friday's peak above parity that was the highest since it was floated in 1983.

Market players said the short-covering bounce in the dollar may have more room to run given that bets against the U.S. currency remained at elevated levels.

Data from the U.S. Commodity Futures Trading Commission showed speculators trimmed bets against the dollar in the latest week but still had hefty wagers against it. [IMM/FX]

The value of the dollar's net short position slipped to $29 billion in the week ended Oct. 12, down from a net short of $30.5 billion in the previous week, the biggest bet against the dollar since at least June 2008.

Traders said short-term speculative and model accounts were active in the Asian session as the euro fell 0.8 percent to test support at $1.3865. Next downside targets are channel support at $1.3825 and then the Oct. 12 low of $1.3775. [FRX/]

Oil fell 0.8 percent towards a one-week low, extending last week's drop, as a stronger dollar halted a charge into commodities.

Metal prices were also lower with spot gold down more than 0.7 percent and silver falling about 2 percent.

The weakening trend in the dollar had drawn funds to commodities and had propelled gold to a record high last week. (Additional reporting by Masayuki Kitano, Chikafumi Hodo in TOKYO; Editing by Alex Richardson)

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