* Dollar rises from 15-month lows on rise in risk aversion
* Oil, gold retreat pressured by rise in dollar
* U.S. industrial output data weighs on markets (Updates with U.S. markets, changes byline, dateline; previous LONDON)
By Manuela Badawy
NEW YORK, Nov 17 (Reuters) - The U.S. dollar rebounded on Tuesday on investors' increasing aversion to risk, driving down world stocks from the previous day's 2009 high, as well as commodity prices.
A weaker-than-expected U.S. industrial production report also pressured the stock market as investors worried about the sustainability of the economic recovery. For story on data see [ID:nN17546734].
Investors paused selling the U.S. dollar, which hit a 15-month low on Monday, after Federal Reserve Chairman Ben Bernanke acknowledged the dollar's slump was causing some prices to rise but said other factors restraining inflation were winning the day.
Bernanke's comments dulled risk appetite and caused investors to cut bets against the dollar.
U.S. stocks fell from a 13-month high as dollar-priced raw materials and commodity-linked stocks weighed on the index.
The Dow Jones industrial average <.DJI> was down 0.02 percent, at 10,404.77. The Standard & Poor's 500 Index <.SPX> was down 0.21 percent, at 1,106.97, and The Nasdaq Composite Index <.IXIC> was down 0.10 percent, at 2,195.71.
The MSCI world equity index <.MIWD00000PUS> fell 0.57 percent, having hit its highest since September 2008 on Monday, as investors stepped back from risk trades and took a breather from an eight-month rally that has pushed the index 75 percent higher.
DOLLAR PRESSURES COMMODITIES
A weaker dollar typically supports commodity prices because dollar-priced contracts -- such as those for oil and gold -- become cheaper for buyers using other currencies.
Crude oil
Meanwhile, a report showed U.S. industrial production rose by a smaller-than-expected 0.1 percent in October as auto manufacturers scaled back following the end of the "cash for clunkers" government incentive program.
Investors are worried about the sustainability of the economic recovery when stimulus spending winds down.
"All of this adds up to concern in the markets today about the strength and durability of the recovery and will weigh on recent gains," said Jim Awad, managing director at Zephyr Management in New York.
WORRIES ON THE DOLLAR
The euro
The Fed -- the U.S. central bank -- has kept benchmark interest rates near zero and pumped hundreds of billions of dollars into the financial system to counter the worst recession in 70 years.
The dollar has been under pressure as the U.S. economy has lagged other economies in recovering from the global crisis.
For the dollar to reverse its long-term downtrend, analysts say China needs to take steps toward a more flexible currency regime, or the Fed has to signal imminent rate hikes.
"Neither of those prerequisites have been fulfilled, so the controlled grinding lower of the dollar will continue," said Johan Javeus, strategist at SEB in Stockholm.
U.S. Treasury debt prices edged higher, pushing 30-year
bond
The benchmark 10-year Treasury note
Bonds have not been as highly correlated with stocks as they were earlier this year. But the lofty peaks equities have scaled recently have some investors worried about whether Wall Street's rally can last.
The FTSEurofirst 300 <.FTEU3> index of top European shares ended 0.4 percent lower at 1,030 after rising 1.5 percent on Monday. The index is up 24 percent in 2009 and has surged 60 percent since hitting a record low in March.
Emerging stocks market <.MSCIEF> fell 0.3 percent.
Japan's Nikkei stock average <.N225> fell 0.6 percent on Tuesday, as Tokyo market players said a host of domestic factors, including economic uncertainty amid renewed talk of deflation and the sense that government initiative on this is lacking, kept Japanese shares under pressure. (Additional reporting by Natsuko Waki in London and Steven C. Johnson, Edward Krudy and Burton Frierson in New York; Editing by James Dalgleish)