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GLOBAL MARKETS-Dollar hits '09 low, aids commodities, stocks

Published 05/22/2009, 07:31 AM
Updated 05/22/2009, 07:40 AM

* Dollar index hits 2009 low on ratings fears

* MSCI world equity index up 0.6 percent at 239.65

* Oil, commodities gain; government bonds weaken

By Natsuko Waki

LONDON, May 22 (Reuters) - The dollar fell to a 2009 low on Friday as fears intensified that the United States could lose its triple-A rating, supporting dollar-priced commodities and boosting resource related shares.

The dollar's latest decline started when ratings agency Standard & Poor's cut its ratings outlook on Britain to negative from stable, stoking fears other AAA-rated countries which are running huge debt levels could share a similar fate.

Moody's Investor Service said on Thursday it was comfortable with its triple-A sovereign rating on the United States but that it was not guaranteed forever.

"The main issues are related to yesterday's movement on fears that the U.S. might lose its triple-A rating," said Roberto Mialich, FX strategist at Unicredit in Milan.

"This exacerbated the dollar's losses over the last few days ... (and) for the time being it's hard to imagine a sharp reversal of the dollar's trend."

The dollar index, which measures the currency's strength against major trading partners, fell 0.4 percent to its lowest since late December.

The index is on track for its biggest weekly drop in two months, when the Federal Reserve launched its large-scale purchases of U.S. Treasuries in late March.

Minutes of the Fed's April meeting, published this week, showed it considered buying more securities to spur recovery, a move which would inject more dollars into the market.

The FTSEurofirst 300 index reversed early losses to stand up 0.4 percent with mining shares garnering support from rises in metal prices. Copper and steel material zinc rose around 3-4 percent, helped by a weaker dollar.

U.S. crude oil rose 0.8 percent to $61.54 a barrel, close to the previous day's six-month high above $62.

MSCI world equity index was up 0.6 percent, off its six-month peak set this week. Emerging stocks rose 0.4 percent. U.S. stock futures were pointing to a firmer open on Wall Street later.

June Bund futures fell 79 ticks.

RECOVERY SIGNS

Money markets showed further signs of easing tensions. In the interbank market in London, the cost of borrowing three-month dollar and sterling funds touched new all-time lows .

There were also signs pointing to a global recovery later in the year.

The Bank of Japan signalled that the worst of the global crisis may be over for the world's second-largest economy, which shrank at a record pace in the first three months of the year.

After a two-day policy meeting, the central bank said it had upgraded its view on the ailing economy, saying conditions were still deteriorating but noting that steep declines in exports and output appeared to be levelling out.

Furthermore, Paris-based economic grouping OECD said the global economy had come out of "free fall".

Given the recovery signs in the economy, investors who have stuck with their defensive portfolios are under pressure to add risks back.

"There is a lot of money out there and I think a lot of people think they might miss out... I think people certainly feel that the worst is over and that even if we get a pullback there is plenty of fuel in the tank for a decent recovery to be staged in time," said David Buik, partner at BGC Partners. (Additional reporting by Jamie McGeever)

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