* U.S. equities near break-even before earnings season
* Oil dips below $70 on dollar strength, fuel build
* Bonds rise as reach for yield trumps supply worry
* Dollar gains, rebounds from 8-1/2-month low vs yen
(Updates with close of U.S. markets)
By Herbert Lash
NEW YORK, Oct 7 (Reuters) - Gold set record highs for a
second straight day on Wednesday, while the dollar rebounded
against major currencies as economic optimism sparked by
Australia's interest-rate hike this week sputtered out.
An element of risk aversion crept back into markets as the
dollar rose, crude oil fell and U.S. equity markets edged
slightly higher on third-quarter earnings expectations.
Government debt edged higher on both sides of the Atlantic.
Oil prices slid under $70 a barrel after U.S. data showed
fuel stocks surged last week in the United States, signaling a
recovery in oil demand may take more time. For more see
[].
Copper prices also slipped in thin and volatile trade
during Chinese holidays, with rising inventories fueling
uncertainty over demand against a still fragile economic
backdrop. []
The Dow Jones industrial average fell while the two other
major U.S. indexes rose slightly as investors booked profits
after two days of strong gains and turned cautious at the
approach of earnings season. []
"Across asset classes we're just seeing some giveback after
yesterday's big moves," said Camilla Sutton, currency
strategist at Scotia Capital in Toronto.
The third-quarter earnings season kicked into gear after
the bell when Alcoa Inc <AA.N>, whose results traditionally
start a new quarter, reported a surprise profit after posting
three consecutive quarters of losses.
Expectations for the quarter have been high following the
second quarter's strong showing, when more than 70 percent of
companies beat Wall Street's consensus estimates.
"I think expectations are much higher than the previous two
quarters, where it was easier to beat," said Alan Lancz,
president of Alan B. Lancz & Associates in Toledo, Ohio.
The Dow Jones industrial average <> closed down 5.67
points, or 0.06 percent, at 9,725.58. The Standard & Poor's 500
Index <.SPX> was up 2.86 points, or 0.27 percent, at 1,057.58.
The Nasdaq Composite Index <> was up 6.76 points, or 0.32
percent, at 2,110.33.
The dollar rebounded from a more than 8-month low against
the yen after Japanese Finance Minister Hirohisa Fujii said he
was watching the currency market and that the exchange rate was
driven by dollar weakness rather than yen strength.
The dollar came under heavy pressure on Tuesday after a
rate increase in Australia bolstered expectations the global
economy was recovering and fueled a worldwide stock rally.
Investors held their selling of the dollar after recently
pushing it sharply lower.
Sutton said while there is always concern that the U.S.
currency is oversold, "trading activity tells us that so far
any real bounce in the U.S. dollar has been used as a selling
opportunity."
The dollar rose against a basket of other major currencies,
with the U.S. Dollar Index <.DXY> up 0.14 percent at 76.443.
The euro <EUR=> was down 0.26 percent at $1.4678 and against
the yen, the dollar <JPY=> was down 0.19 percent at 88.59 yen.
Spot gold <XAU=> hit a historic high of $1,048.20 an ounce,
and was last at $1,043.00.
Treasuries gained, with the benchmark 10-year U.S. Treasury
note <US10YT=RR> up 22/32 in price to yield 3.18 percent.
U.S. crude for November delivery <CLc1> settled 1.9 percent
lower at $69.57 a barrel after gaining the two previous days.
London Brent crude <LCOc1> fell $1.36 to $67.20.
The weekly report from the U.S. Energy Information
Administration, the statistical arm of the Department of
Energy, showed crude stocks falling by 1 million barrels,
against market expectations for a 2.2 million drop.
"Crude is pivoting around $70 a barrel with factors on
either side to hold it there. The key is going to be when
demand figures for gasoline and distillate pick up," said
Tradition Energy's Gene McGillian.
European shares closed lower and U.S. equities fell as
investors booked profits ahead of the start of the U.S.
earnings season after the bell on Wednesday, when Alcoa <AA.N>
reported third-quarter results. []
"We are just seeing a little bit of profit taking. There is
no bad economic data out there," said David Buik, partner at
BGC Partners. "We have Alcoa's results tonight and then the
earnings show will be on the road.
Alcoa Inc posted a surprise profit after the closing bell
on Wall Street, easily beating analysts' forecasts, on cost
savings and an increase in aluminum prices. []
The pan-European FTSEurofirst 300 <> index of top
shares closed down 0.4 percent at 988.76.
Earlier in Asia, shares rose for a second day on growing
confidence in a strengthening global recovery boosted resource
and financial companies.
The MSCI index of Asia-Pacific shares outside Japan
<.MIAPJ0000PUS> was up 1.3 percent; the Thomson Reuters index
of regional shares <.TRXFLDAXPU> rose 1 percent.
Japan's Nikkei average <> gained 1.1 percent.
(To read Reuters Global Investing blog, double-click on:
http://blogs.reuters.com/globalinvesting. For the MacroScope
blog, double-click on: http://blogs.reuters.com/macroscope. For
Hedge Fund blog, double-click on:
http://blogs.reuters.com/hedgehub)
(Reporting by Ryan Vlastelica, Wanfeng Zhou, Joshua Schneyer
and Burton Frierson in New York and Joanne Frearson and Emelia
Sithole-Matarise in London; Writing by Herbert Lash; Editing by
James Dalgleish)
