* Dollar trade-weighted index <.DXY> hits lowest since Jan
* Markets wary of weak US data, further QE from Fed
* Dollar decline lifts commodity prices; oil, gold up
* Higher euro, Irish bank woes hit European stocks, debt
By Mike Dolan
LONDON, Sept 29 (Reuters) - The U.S. dollar extended its steep decline on Wednesday, clocking losses of more than five percent for the month, as investors prepared for the Federal Reserve to print more money to lift the weakening U.S. economy.
Mounting speculation the Fed will embark on a second round of quantitative easing -- expanding its balance sheet to buy bonds and others assets -- to prevent a double-dip U.S. recession sent the dollar to a five-month low against the euro and a two-year trough against the Australian dollar.
The latest leg of the dollar decline was fuelled by Tuesday's data that U.S. consumer confidence [ID:nN28262737] fell to its lowest in seven months.
Wednesday's contrasting reports of Chinese [ID:nTOE68S046] and European [ID:nLDE68S0LU] economic and business sentiment advancing this month added to pressure on the greenback.
"The market is jumping on QE expectations as it feels the U.S. data will force the Fed to do something and I think that will be the case," said Manuel Oliveri, currency strategist at UBS in Zurich. ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^For graphic on world asset market performance in Q3 and YTD:
http://graphics.thomsonreuters.com/F/09/GLB_MKTQE.html
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ The dollar's decline fuelled further gains in commodity
prices, with gold
MSCI world equity index <.MIWD00000PUS> and the Thomson Reuters global stock index <.TRXFLDGLPU> made modest 0.25 percent gains.
Wall St futures
The rising euro's impact on European exporters and further jitters over the stability of the region's government debt markets offset the upbeat economic data and knocked European stocks <.FTEU3> back 0.5 percent. European banks <.SX7P> were down 1.3 percent.
Sentiment weakened after the Irish Times reported the final cost of winding down Anglo Irish Bank over a 15-year period may rise well above 30 billion euros ($40.4 billion) under a worst case or "stress scenario".
Deutsche Bank
The VDAX-NEW volatility index <.V1XI>, one of Europe's main barometers of investor anxiety, rose 2.8 percent.
"It's like, if people are bracing for the bad news, that will trigger a pull-back," says David Thebault, head of quantitative sales trading at Global Equities.
European debt markets [GVD/EUR] were buffeted by the Irish situation and concern about a vote of confidence in Italy's government later on Wednesday, a concern for its budget tightening process and one which sent Italian government debt premia briefly to their costliest since June.
Debt spreads steadied as the core German goverment bond yield bounced back later, following data showing European banks took less cash than expected from the European Central Bank at its latest tender.
US AND JAPAN MONEY PRINTING
"The backdrop for the dollar continues to deteriorate," JPMorgan said, advising clients to seize any bounce in the dollar as a chance to sell. "The increased focus on QE (quantitative easing) and the break of several key dollar support levels maintained the overall bearish bias."
In Asia, where the Bank of Japan's yen sales are also akin to money printing, Japanese government bond futures hit a seven-year high while the U.S. Treasury yield curve moved on Tuesday to its flattest since early September on expectations of further monetary easing by both central banks. [TOP/DBT]
Stock markets there found support in the rise in HSBC's China Purchasing Managers' index to a five-month high as it indicated rising momentum in China's vast industrial sector. [ID:nTOE68S046]
Asian stocks outside Japan <.MIAPJ0000PUS> rose 0.6 percent, poised for their biggest monthly gain since July 2009, up 11.8 percent, in what is historically one of the worst months for stocks.
Japan's Nikkei <.N225> closed up 0.7 percent, helped by quarter-end window dressing and expectations that the BOJ will respond to the worsened outlook from Japanese manufacturers by further easing its policy when it meets on Oct. 4-5. (Additional reporting by Neal Armstrong and Joanne Frearson in London, Vikram Subhedar in Hong Kong, Masayuki Kitano and Charlotte Cooper in Tokyo, editing by Tim Pearce)