* Dollar hovers near three-year lows
* European stocks and world equities index flat to lower
* U.S. Treasuries set for biggest drop in 8 months
* Commodity rally pauses
By Mike Peacock
LONDON, April 29 (Reuters) - The dollar languished near
three-year lows on Friday, weighed down by weak U.S. data and
the prospect of ultra-loose policy for months yet, while stocks
paused for breath and a strong commodities rally tailed off.
Analysts see little upside for the dollar following the
Federal Reserve's pledge this week to continue with near-zero
interest rates for an "extended period" while central banks in
Europe, Asia and Latin America raise interest rates.
With weak U.S. economic data this week also offering no
relief, the dollar index <.DXY>, which tracks its performance
against a basket of major currencies, fell to its lowest level
since July 2008 this week before recovering somewhat.
The index is down about 7.5 percent this year, making it one
of the world's worst-performing assets, and is on track for its
biggest weekly fall since mid-January.
The euro edged up 0.1 percent to $1.4840 <EUR=> by 0800 GMT,
not far off a 17-month peak of $1.4882 hit on Thursday on
trading platform EBS.
Sean Callow, a strategist at Westpac in Sydney, said
sentiment towards the dollar was "profoundly bearish with no
catalyst for reversal", at least until all-important non-farm
payrolls data next week.
Thursday's weak U.S. GDP and jobless numbers prompted
10-year U.S. Treasury bond yields <US10YT=RR> to hold at 3.31
percent, on track for their biggest monthly drop in eight
months. []
With risk appetite ascendant, partly fuelled by the
assumption that rock bottom U.S. rates will continue to drive
money into riskier assets, world equities as measured by the
MSCI index <.MIWD00000PUS> are up by some 5 percent over the
past two weeks, though they edged lower on Friday.
European shares slunk 0.1 percent lower <>, snapping a
six-session winning streak, with investors taking profits from
eight-week highs and as volumes were crimped by a holiday in
Britain for the Royal Wedding.
"The earnings season has been more positive than expected,
but the concern is that the estimates are being revised
negatively and that might be a signal for difficult times
ahead," said Koen De Leus, strategist at KBC Securities in
Brussels.
German government bonds were little changed ahead of euro
zone inflation numbers for April which are forecast to hold at
2.7 percent year-on-year, well above the European Central Bank's
2 percent target ceiling.
Analysts said such a reading would remind markets that the
ECB remains on track to raise interest rates for a second time
this year.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Brent:
http://graphics.thomsonreuters.com/WT1/20112904083345.jpg
Graphic on silver:
http://r.reuters.com/duj88r
Fed funds rate hike expectations:
http://r.reuters.com/xyz48r
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
COMMODITIES SOFTEN
The broad commodity market rally softened with silver <XAG=>
pulling back by over a dollar from Thursday's $49.51 per ounce
peak, its highest since 1980, while Brent crude for June <LCOc1>
dropped 0.4 percent to $124.52 a barrel.
Gold <XAU=> eased to $1,532.50 an ounce after hitting a
lifetime high around $1,538 an ounce in the previous session.
The 19-commodity Reuters-Jefferies CRB index <.CRB>, a broad
indicator of the commodity market, is up nearly 10 percent this
year, making it the world's best performing asset group.
"If the dollar continues to weaken, then it's only likely to
boost gold as well as silver as the inverse relationship between
the two assets persists," said Ong Yi Ling, investment analyst
at Phillip Futures in Singapore.
With the dollar virtually friendless, the Australian dollar
<AUD=D4> stood at $1.0924, still within easy reach of a 29-year
peak of $1.0948.
The Chinese yuan <CNY=CFXS> cracked through the 6.5 per
dollar line for the first time, indicating Beijing's
determination to fight inflation and giving a leg up to other
currencies. []
* For Reuters Global Investing Blog, click on
http://blogs.reuters.com/globalinvesting
* For the MacroScope Blog, click on
http://blogs.reuters.com/macroscope
* For Hedge Fund Blog, click on
http://blogs.reuters.com/hedgehub
(Additional reporting by Jessica Mortimer, Atul Prakash and
William James in London, Ian Chua in Sydney, Umesh Desai and
Jongwoo Cheon in Singapore; Editing by Catherine Evans)
