GLOBAL MARKETS-Dollar bounces, gold off on fears rally overdone

Published 10/07/2010, 01:15 PM
Updated 10/07/2010, 01:20 PM
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* US dollar rebounds after slumping to 15-year low vs yen

* Oil slips after earlier 5-month high on weak dollar

* Treasuries eke gains on uncertain payrolls report

* Global stocks slip on dollar despite Fed easing view (Adds close of European markets)

By Herbert Lash

NEW YORK, Oct 7 (Reuters) - The U.S. dollar rebounded after slipping to a 15-year low versus the Japanese yen and commodity prices erased gains that had pushed gold to yet a new high on Thursday as traders bet momentum had swung too far, too fast.

Oil slipped from a five-month high above $84 a barrel, copper tumbled and gold, on course for its largest one-day slide in a month, extended losses as the dollar strengthened. For details see:[ID:nSGE69607M] [ID:nLDE6960UJ] [ID:nLDE6961Z9]

The dollar slumped to an all-time low against the Swiss franc while the Australian dollar surged to a 27-year high against the U.S. currency, driven by expectations the Federal Reserve will boost money supply to help the anemic economy.

The Bank of England and the European Central Bank both stood pat on their monetary policies, reinforcing the notion the Fed is closer to another round of quantitative easing than other central banks, a move that would knock the dollar lower.

The dollar fell below 82.87 to the yen, about the level that led the Bank of Japan to intervene in markets for the first time in six years on Sept. 15, while the euro rose above 1.40 before easing some of its gains.

"It's still the same story purely driven by financial markets, particularly the falling U.S. dollar, which pushes up commodity prices in dollar-terms across the board," said Carsten Fritsch, analyst at Commerzbank in Frankfurt.

Stocks swooned late in the day in Europe and Wall Street also slid as broad selling of the dollar eased and investors took stock of the currency rout and whether it contradicted economic fundamentals. [ID:nLDE696217]

Investors turned cautious ahead of key U.S. jobless data on Friday after PepsiCo Inc trimmed the top end of its full-year earnings forecast.

The outlook painted a gloomy picture of the U.S. earnings season, which kicks off with Alcoa Inc after the bell.

The pan-European FTSEurofirst 300 <.FTEU3> index of top shares closed 0.01 percent lower at 1,070.53 points as miners tracked metals prices that slid after the dollar's recovery.

"It's been the same story, the dollar goes down, assets are all inflated -- gold, oil, stocks," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.

"But in the end stocks are valued by how much money they do make and earnings are a big deal ... let's see what these guys actually have," Saluzzi said.

The Dow Jones industrial average <.DJI> was down 58.31 points, or 0.53 percent, at 10,909.34. The Standard & Poor's 500 Index <.SPX> was down 7.05 points, or 0.61 percent, at 1,152.92. The Nasdaq Composite Index <.IXIC> was down 8.77 points, or 0.37 percent, at 2,371.89.

FED EASING STILL EXPECTED

The two-year Treasury note yield marked a record low, dipping to 0.36 percent from Wednesday's finish near 0.39 percent, knocked down on widespread expectations the Fed will embark on further stimulus.

Signs of some improvement in the troubled labor market, from a report showing new U.S. claims for unemployment benefits fell to a near three-month low last week, did not alter the view that the Fed will soon roll out a new asset purchasing program. [ID:nN07108320]

Initial claims for state unemployment benefits dropped 11,000 to a seasonally adjusted 445,000, the lowest since the week of July 10, the Labor Department said. Analysts polled by Reuters had forecast claims edging up to 455,000.

"Some people are speculating that tomorrow's (payrolls) number could be weak enough to validate the speculation about quantitative easing," said David Coard, head of fixed income sales and trading at Williams Capital Group in New York.

The dollar rose against a basket of major currencies, with the U.S. Dollar Index <.DXY> up 0.30 percent at 77.619.

The euro was down 0.47 percent at $1.387. Against the yen, the dollar was down 0.58 percent at 82.43.

U.S. light sweet crude oil fell $1.60 to $81.63 barrel after earlier hitting $84.43 a barrel.

Spot gold prices fell $17.65 to $1,330.70 an ounce after hitting an all-time peak of $1,364.60 earlier in the day.

The MSCI index of Asia Pacific stocks outside Japan was up 0.2 percent <.MIAPJ0000PUS> to the highest since June 2008. Japan's Nikkei share average <.N225> slipped 0.1 percent but for the week was still up about 3 percent. (Reporting by Angela Moon, Nick Olivari and Chris Reese in New York; Alex Lawler, Amanda Cooper, Alex Lawler, Harro ten Wolde, Kirsten Donovan, George Matlock and Marie-Louise Gumuchian in London; Writing by Herbert Lash; Editing by Padraic Cassidy)

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