Dollar hits three-month high on rate view, pans gold

By Nigel Stephenson and Sujata Rao

LONDON (Reuters) - The dollar jumped to three-month highs on Monday, extending its recent run of gains as expectations of a U.S. rate rise gathered pace, while gold prices plunged to their lowest in more than five years.

The greenback posted its best weekly performance in about two months last week, after Federal Reserve Chair Janet Yellen reiterated that U.S. interest rates will probably rise later in the year. Data on Friday showing a robust pick up in U.S. consumer prices and housing starts also helped the rally.

The strength of the dollar weighed on gold, which plunged as much as 4 percent, while platinum fell as much as 5 percent to its lowest since February 2009.

Global equities eased off three-week highs hit on Friday (MIWD00000PUS), though European shares approached six-week peaks. Greece-related fears continued to recede as the country's banks reopened for the first time in three weeks after a deal to start talks on a new international bailout.

The dollar hit its highest since April 23 against a basket of major currencies (DXY) before pulling back slightly to trade flat on the day.

The euro hit its lowest since late April but last traded up 0.2 percent at $1.0853. The yen was flat at 124.09 to the dollar.

The New Zealand and Australian dollars were big fallers in Asia but traders said the kiwi had recovered some ground after New Zealand Prime Minister John Key said the currency's 25 percent fall over the last year had been faster than expected. It was last up 0.8 percent on the day.

"All of the commodity currencies are taking a hammering from the dollar's rise and in the broader scheme of things this is a small retracement," said a dealer at an international bank in London.

Gold dived, briefly hitting a five-year low as sellers in China dumped the metal against the background of the U.S. interest rate outlook and its consequences for the dollar.

"The (gold) market (is) trading as a proxy for market expectations towards the timing and likelihood of an interest rate hike in the United States this year," Barclays (LONDON:BARC) analysts said, predicting the weakness would continue with average prices of $1,150 per ounce.

Analysts said selling in China, a major consumer of gold, suggested prices would remain weak.

Spot gold last traded at $1,116.23 an ounce, having fallen as far as $1,088.05, its weakest since March 2010.

The pan-European FTSEurofirst 300 (FTEU3) equity index rose 0.4 percent. Amsterdam-listed chemicals company OCI (AS:OCI) rose 11 percent on merger talk

Gold miners took a hit, although traders said market sentiment was helped by the re-opening of Greece's banks.

In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan (MIAPJ0000PUS) slipped 0.5 percent. Japan's stock market was closed for a holiday.

German benchmark 10-year government bond yields edged up 1.4 basis points to 0.76 percent as signs of a return to normality in Greece were offset by the prospect of hefty redemptions and bond coupon payments by month-end.

Crude oil prices edged higher after posting their third consecutive weekly loss last week on expectations of increased o exports from Iran following a deal to ease sanctions on Tehran.

Brent crude was last up 10 cents a barrel at $57.20.