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GLOBAL MARKETS-Equities off 2009 highs; dollar gains

Published 11/17/2009, 07:24 AM
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* MSCI world equity index down 0.4 pct

* Wall Street set for mild losses

* Shares off 2009 highs, dollar above 15-month lows

* Oil, gold slip after rally; govt bonds firmer

By Natsuko Waki

LONDON, Nov 17 (Reuters) - World stocks slipped on Tuesday from the previous day's 2009 high and oil and gold fell as investors locked in gains from a strong rally.

Wall Street looked set for modest losses at the open and the dollar edged higher from its 15-month lows.

Expectations that the Federal Reserve would keep interest rates near zero for some time had been weighing on the dollar, fuelling gains in dollar-priced raw materials and related commodity shares.

On Tuesday, investors stepped back from risk trades, mindful that a period of consolidation was probable given that world stocks, measured by MSCI <.MIWD00000PUS>, rallied around 75 percent from their March troughs.

"Despite the fundamentals remaining upbeat, a degree of consolidation is likely ... as equity traders pause for breath," IG Markets analyst Ben Potter noted.

"There is however little to suggest that this will turn into any full-blown bout of profit taking ... The overall view seems to remain that with the economic recovery underway and government stimulus attempts ongoing, there are few reasons out there to be avoiding stocks." MSCI world equity index <.MIWD00000PUS> fell 0.4 percent, having hit its highest since September 2008 on Monday.

The FTSEurofirst 300 index <.FTEU3> fell 0.3 percent, after hitting a 13-month high in the previous session.

Emerging stocks market <.MSCIEF> fell 0.4 percent.

U.S. crude oil fell more than half a percent to $78.28 a barrel, while gold lost more than three quarters of a percent to around $1,129 per ounce after hitting record highs above $1,143 on Monday.

FED AND DOLLAR

The dollar <.DXY> rose 0.7 percent against a basket of major currencies, just above Monday's 15-month lows.

Fed chairman Ben Bernanke, in a rare comment on the U.S. dollar's value, acknowledged the currency's slump was causing some prices to rise, although other factors were restraining inflation. [nN16581813]

He also said tight credit and a weak job market would weigh on the economy's recovery, repeating the Fed's pledge to keep interest rates exceptionally low for an extended period.

"The Chairman's rhetoric signals that the dollar decline is well on the radar of the Fed and U.S. authorities may be more prone to acquiesce to stronger rhetoric opposing dollar weakness. This is something to watch at forthcoming G7, G20, etc meetings," Citi said in a note to clients.

"While verbal support may moderate the pace of dollar decline, it is unlikely to affect a structural trend that reflects well-entrenched fundamentals. In addition, current dollar short positioning is not particularly stretched and investors may continue to look to sell on rallies."

The Bund future gained 11 ticks, underpinned by cautious comments from European Central Bank officials who have stressed a slow and steady exit policy from their extraordinary stimulus measures. (Editing by Mike Peacock)

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