(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, Aug 11 (Reuters) - The dollar strengthened on
Monday, reducing inflation worries and helping drive equity
markets higher also pushing down oil and other commodities.
Stocks climbed as oil fell, building on a Wall Street rally
that gave U.S. equity markets Friday ended its best week in
three months. The stock gains also lessened the safe-haven
allure of government debt.
Crude <CLc1> fell more than $2 at one point to below $113 a
barrel, trading near its lowest levels since early May, and the
dollar edged higher versus the euro as worries about economies
outside the United States mounted.
The slumping euro boosted European exporters such as
automotive stocks, and helped lift share prices in Europe to
six-week highs.
The soaring dollar forced the heavy liquidation of long
positions in gold, knocked U.S. gold futures down 4.2 percent
in the biggest one-day percentage loss since March 19.
Other commodities also tumbled, with copper slipping to
lows last seen in February.
"The correction that we are seeing is really a reflection
of the slowdown of the global economy," Ashok Shah, chief
investment officer at London & Capital, said of the sell-off in
commodities.
U.S. stocks rose more than 1 percent, with the Nasdaq up
almost 2 percent. But a Federal Reserve survey of U.S. banks
that showed tighter lending standards, especially for consumer
loans, took the steam out of the Wall Street rally.
A bounce-back in oil also knocked equities off their highs
amid fear oil might rally this week, said Angel Mata, managing
director of listed equity trading at Stifel Nicolaus Capital
Markets in Baltimore.
"As much as oil brought the market up, it also took the
market down once it turned around. It's that simple," Mata
said.
Fighting between Russia and Georgia provided early support
to crude and gold prices, and helped European stocks in energy.
But unlike Europe, the fall in oil prices pushed energy shares
in the United States lower.
U.S. and euro zone government bond prices fell from last
week's highs in reaction to the rally in equity markets. The
Georgia-Russia conflict provided underlying support for
safe-haven government debt.
Shares of Amazon jumped 10.2 percent to $88.69 on Nasdaq
after Citigroup said the company's Kindle book reader could be
one of the top electronics gifts of the 2008 holiday season,
along with Apple Inc's <AAPL.O> newest iPhone.
Apple's stock also gave a major lift to both the Nasdaq
and the S&P 500, with Apple up 2.6 percent at $173.94.
"Every time oil falls, stocks rise at the moment. But oil is not going to keep going down every day with all that is
going on geopolitically," said Joe Saluzzi, co-manager of
trading at Themis Trading in Chatham, New Jersey.
Fighting between Russia and Georgia disrupted some Caspian
shipments, which lifted European oil companies BP <BP.L>, Royal
Dutch Shell <RDSa.L> and Total <TOTF.PA> by 1.1 percent to 1.9
percent.
Investors are worried that the fighting might disrupt the
key Baku-Tbilisi-Ceyhan oil pipeline that carries Azeri crude
through Georgia to Ceyhan on the Turkish Mediterranean coast.
Some analysts said softer oil prices might lend a temporary
pillar of support for equities, given the slowing in economic
growth in Europe and uncertainty over the impact of the credit
crunch on the financial sector.
The FTSEurofirst 300 index <> of top European shares
rose 1.08 percent to close at 1,211.95 points, its highest
close since June 25.
The euro, which last week suffered its biggest weekly fall
since its inception in 1999, fell almost to $1.49 <EUR=> at one
point. It recouped some losses after European Central Bank
council member Klaus Liebscher warned that policy-makers
remained focused on taming high inflation. That suggests higher
rates in the euro zone may be in store.
"Growth outside the U.S. is really slowing and hawkish
remarks by the ECB at this point won't have the same impact on
the euro as they did one or two months ago," said Matthew
Strauss, a currency strategist at RBC Capital Markets in
Toronto.
The euro <EUR=> fell 0.73 percent at $1.4895.
The dollar rose against major currencies, with the U.S.
Dollar Index <.DXY> up 0.14 percent at 76.27. Against the yen,
the dollar <JPY=> was down The benchmark 10-year U.S.
Treasury note <US10YT=RR> fell 18/32 to yield 4.01 percent. The
30-year U.S. Treasury bond <US30YT=RR> fell 36/32 to yield 4.61
percent.
U.S. Treasury debt prices slid as oil's fall and stock
market gains reinforced the idea that consumers might be able
to spend enough to keep the economy from weakening further.
"Contributing to the downside in Treasury prices today, it
looks like we are seeing some allocation out of bonds and into
stocks," said Michael Sheldon, chief market strategist with RDM
Financial Group in Westport, Connecticut.
Worries about slowing global demand and a stronger dollar
knocked down oil prices.
U.S. crude <CLc1> settled down 75 cents at $114.45 a
barrel, after touching a low of $112.72, extending losses that
have dragged oil off a record high above $147 a barrel hit on
July 11. London Brent crude <LCOc1> fell 66 cents to $112.67.
The December contract for gold <GCZ8> settled down $36.50
at $828.30 an ounce in New York.
Gold also fell sharply due to a technical breakdown as
prices dropped below major support levels, said Bruce Dunn, a
vice president at Auramet Trading.
Copper for delivery in three months <MCU3> slid to $7,315 a
tonne on the London Metal Exchange, and has tumbled about 17
percent since a record high of $8,940 on July 2.
Asian stocks rose, spurred by a growing view that the
dollar's long decline is nearing an end.
Japan's Nikkei share average <> rose 2 percent, led by
high-profile exporters Honda Motor Co <7267.T> and Canon Inc
<7751.T>.
Outside Japan, Asia-Pacific stocks were up 0.6 percent
<.MIAPJ0000PUS> as measured by an MSCI index.
(Reporting by Walter Brandimarte, Ellis Mnyandu, Ellen
Freilich, Vivianne Rodrigues and Frank Tang in New York, and
Alastair Sharp and Amanda Cooper in London)
(Writing by Herbert Lash. Editing by Richard Satran)
