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GLOBAL MARKETS-Gold extends record high on US dollar weakness

Published 11/18/2009, 04:57 PM
Updated 11/18/2009, 05:03 PM
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* Profit-taking, weak economic data pull U.S. dollar down

* Gold rises to fresh record high of $1,152.75 per ounce

* U.S. stock indexes slip from 13-month highs

* U.S. technology shares hit by some weak earnings (Updates with closing prices, comment)

By Daniel Bases

NEW YORK, Nov 18 (Reuters) - Gold turned in the brightest performance on an otherwise dismal day for global markets, hitting a record high after weak U.S. economic data and worrisome outlooks from some software companies undermined the economic recovery outlook.

Investors made further bets that U.S. interest rates would stay low for the foreseeable future, after a surprise decline in new home construction, by selling the U.S. dollar a day after its best performance in three weeks.

The dollar's drop was to the benefit of commodity prices as crude oil also rose, pulling closer to $80 a barrel.

European share prices were brought lower by weak U.S. share prices, while Japanese stocks closed at six-week lows.

U.S. Treasury bonds could not capitalize on the drop in stock prices as slightly stronger-than-expected U.S. consumer inflation data encouraged some selling. Euro zone government bond prices followed suit. [ID:nN1899353]

Spot gold prices rose 3.50 cents, or 0.31 percent, to $1,144.85 after earlier hitting a record $1,152.75.

The run-up in gold was driven by investors counting on the precious metal as a hedge against a falling dollar and by speculative buying, analysts said.

"There is a lurking concern in the background that still exists," said Bill O'Neill, partner at LOGIC Advisors, noting that investors were worried about the vulnerability of banks and the financial system.

St. Louis Federal Reserve Bank President James Bullard said the U.S. central bank would likely start tightening financial conditions by selling assets it has accumulated before raising interest rates.

The Bullard statement "throws cold water on any lingering thoughts of rate hikes," said Jacob Oubina, strategist at Forex.com in Bedminster, New Jersey. It also offset comments this week from Fed Chairman Ben Bernanke, who triggered a dollar rally when he said the central bank was attentive to the dollar's value.

At 4:20 p.m. (2129 GMT), the dollar was down against a basket of major currencies <.DXY> 0.40 percent at 75.064.

The euro was up 0.63 percent at $1.4961 while the dollar was flat versus the Japanese yen, down just 0.01 percent at 89.31 .

On Wall Street, a day after U.S. stocks closed at their best levels in 13 months, the Dow Jones industrial average <.DJI> fell 11.11 points, or 0.11 percent, at 10,426.31. The Standard & Poor's 500 Index <.SPX> lost 0.52 points, or 0.05 percent, at 1,109.80. The Nasdaq Composite Index <.IXIC> dropped 10.64 points, or 0.48 percent, at 2,193.14.

In the last week there has been a breakdown in the negative correlation between U.S. stocks and the dollar whereby any positive news on the economy has been good for equities but bad for the dollar as investors take a step off the sidelines with their cash and put it at greater risk.

"I think the reason why it has broken down this week has been talk on behalf of the Fed on the dollar and possibly maintaining low interest rates for a prolonged period of time," said Michael Woolfolk, senior currency strategist at BNY Mellon in New York.

"It is uniformly negative for the U.S. dollar regardless of the direction of the (U.S.) stock market," he added.

European share prices fell for a second consecutive day with stronger mining stocks unable to offset weak U.S. economic data and technology shares.

The FTSEurofirst 300 <.FTEU3> index of top European shares ended down 0.3 percent at 1,027.16 points, having hit a fresh 13-month high earlier in the trading session.

U.S. technology stocks, among the stronger areas of the market weakened after architectural and engineering software maker Autodesk Inc forecast fourth-quarter earnings below expectations. Customer relationship software maker Salesforce.com Inc reported a slowdown in new business. For details, see [ID:nN1747284] and [ID:nN1739572].

In the energy markets, U.S. crude oil settled up 44 cents, or 0.56 percent, at $79.58 a barrel, trading from $78.67 to $80.33. The latest government report said crude inventories fell last week after doubts about economic recovery were stoked by the housing data.

The benchmark 10-year U.S. Treasury note was down 10/32, with the yield at 3.37 percent.

Euro zone government bond yields rose. The 10-year Bund yields were up half a basis point at 3.288 percent. (Additional reporting by Naomi Tajitsu, Christoph Steitz, Kirsten Donovan in London, Leah Schnurr, Steven C. Johnson, Emily Flitter, Ellen Freilich in New York; Editing by Kenneth Barry)

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