* Euro firm vs dollar after euro zone inflation rises
* European stocks and world equities index flat
* U.S. Treasuries set for biggest drop in 8 months
* Commodity rally pauses
(Releads after European inflation, adds US stock futures)
By Mike Peacock
LONDON, April 29 (Reuters) - The dollar languished near
three-year lows on Friday after inflation data suggested euro
zone interest rates will rise again this summer, 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
rates for an "extended period" while central banks in Europe,
Asia and Latin America are tightening policy.
Inflation in the 17-nation currency bloc edged up to 2.8
percent in April, well above the 2 percent target ceiling of the
European Central Bank, which raised rates for the first time in
two years earlier this month. []
"The inflation numbers support the view that the ECB will
deliver another interest rate hike before long. Indeed, although
we expect a rate increase at the July meeting, the balance of
risks is tilted towards an earlier move," said Aline Schuiling,
senior economist at ABN AMRO.
The euro was trading at $1.4865 <EUR=> by 1045 GMT, close to
a 17-month peak of $1.4882 hit on Thursday. The single currency
also rose to a six-month high against sterling. []
German government bonds slipped after the inflation numbers
with the Bund future <FGBLc1> last at 122.55, 12 ticks lower on
the day. []
With Thurday's weak U.S. GDP and jobless data offering no
relief to the dollar, the index <.DXY> which tracks its
performance against a basket of major currencies fell to its
lowest since July 2008 this week before recovering somewhat.
The index is down about 7.5 percent this year, making the
dollar one of the world's worst-performing assets, and is on
track for its biggest weekly fall since mid-January. The dollar
also hit a record low against the Swiss franc <CHF=> on Friday.
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 U.S.
non-farm payrolls data next week.
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 were flat on Friday.
European shares <> were also unchanged following a
six-session winning streak, with volumes crimped by a holiday in
Britain for the Royal Wedding. U.S. stock index futures pointed
to a flat open on Wall Street <SPc1>.
"The (company) 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.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Asset returns since first hints of Fed QE2
http://r.reuters.com/pyc39r
Fed rate hike expectations: http://r.reuters.com/xyz48r
Graphic on silver: http://r.reuters.com/duj88r
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
COMMODITIES PAUSE
A broad commodity market rally softened with silver <XAG=>
pulling back by about 70 cents from Thursday's $49.51 per ounce
peak, its highest since 1980, while U.S. crude futures for June
<CLc1> had dropped 0.2 percent to $112.65 a barrel by 1045 GMT.
Gold <XAU=> stood at $1,536.80 an ounce after hitting a
lifetime high around $1,538 in the previous session.
But further gains are expected unless the dollar recovers.
"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.
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.
With the dollar virtually friendless, the Australian dollar
<AUD=D4> stood at $1.0935, within easy reach of a 29-year peak
of $1.0948.
* 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 and Susan
Fenton)
