* Global stocks fall as dollar rallies strongly
* Year-end trading reduces risk-taking
* Greece concern drags euro lower
(Updates with U.S. markets close)
By Al Yoon
NEW YORK, Dec 17 (Reuters) - The dollar jumped to its
highest in more than three months against major currencies on
Thursday as a U.S. economic report supported a slightly more
optimistic outlook delivered by the Federal Reserve.
World stocks fell nearly 2 percent, with bank shares hurt
after the U.S. Federal Reserve said on Wednesday that some
special programs to support the financial system were no longer
needed and would expire by early next year. For more, see:
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The euro fell to the lowest in more than three months, also
hurt by Standard & Poor's downgrade of Greece's rating by one
notch, to BBB-plus from A-minus, late on Wednesday.
While the Fed left rates unchanged, prospects that it will
spark tighter U.S. monetary policy earlier than expected
triggered an unwinding of short dollar positions ahead of the
new year. Investors also pared riskier equity positions to
protect profits after a more than 70 percent rally for global
equities since March.
The Fed gave no indication it would soon raise its target
interest rate from near zero. In addition, a Senate panel's
vote to advance the nomination of Ben Bernanke to a second term
as the U.S. central bank chief was cheered by bond investors
concerned about interruption in his low rate policy.
[].
But debate is intensifying for a move to curb the
inflationary pressure of easy U.S. monetary policy and close
the gap with European rates -- a measure that would boost the
value of dollar-based assets.
"The markets have had a big recovery from their lows, and
right now traders are looking to more or less nail down some
profits," said Steve Goldman, market strategist at Weeden & Co
in Greenwich, Connecticut. He added that the stronger dollar is
removing what had been a key driver of U.S. equity gains.
GREECE WORRIES
Standard & Poor's said austerity steps announced by Greek
Prime Minister George Papandreou were unlikely to produce a
"sustainable" reduction in the public debt burden, raising
worries about the finances of the euro zone member.
"The problem for the euro is the mix of the (Fed) statement
and the very strong concerns over Greece ... All the euro
crosses have suffered," said Roberto Mialich, FX strategist at
Unicredit in Milan.
In the United States, a report from the Federal Reserve
Bank of Philadelphia showed an index of business activity in
its region was at the highest since April 2005, underscoring
the stronger outlook for U.S. growth. But initial jobless
claims rose in the latest week, adding to expectations that the
recovery would be modest.
World stocks fell, with MSCI's all-country index down 1.77
percent <.MIWD00000PUS> and its emerging market component off
1.93 percent <.MSCIEF>.
On Wall Street, the Dow Jones industrial average <>
dropped 132.86 points, or 1.27 percent, to 10,308.26. The
Standard & Poor's 500 Index <.SPX> edged down 13.10 points, or
1.18 percent, to 1,096.08, and the Nasdaq Composite Index
<> slipped 26.86 points, or 1.22 percent, to 2,180.05.
In Europe, the FTSEurofirst 300 <> index declined
1.25 percent, having hit a one-month closing high on Wednesday.
Bank stocks, including BNP Paribas <BNPP.PA>, Banco Santander
<SAN.MC>, Barclays <BARC.L> and HSBC <HSBA.L> led losers.
The dollar gained against a basket of major trading-partner
currencies, with the U.S. Dollar Index <.DXY> up 0.98 percent
at 77.753. The euro <EUR=> fell 1.38 percent to $1.4336.
Against the yen, the dollar <JPY=> was up 0.16 percent to 89.92
yen.
Equities have had a robust year, especially since March,
but are becoming more volatile ahead of year-end, with
questions pending about 2010. The closure of key programs by
the U.S. central bank has raised questions on whether the
economy is strong enough to stand on its own feet.
"Markets are still trying to find a trend and establish
whether the improvement in the economy is due to stimulus
packages," said Justin Urquhart Stewart, investment director at
Seven Investment Management.
Japan's Nikkei average <> ended down 0.1 percent,
slipping from seven-week highs as investors pocketed profits on
a rally in big banks such as Mitsubishi UFJ Financial Group
<8306.T>.
U.S. and German government bonds rallied as the downgrade
of Greece's rating revived a bid for low-risk government debt.
U.S. Treasuries also rose as a Senate panel backed Fed Chairman
Bernanke's nomination for a new term.
Benchmark U.S. 10-year Treasury note <US10YT=RR> yields
declined 0.12 percentage point to 3.48 percent, while 10-year
Bund yield <EU10YT=RR> slipped 0.07 point to 3.15 percent.
In energy and commodities trading, U.S. light sweet crude
oil <CLc1> rose 0.06 percent to $72.70 per barrel and spot gold
<XAU=> fell 3.53 percent to $1097.40.
(Additional reporting by Jeremy Gaunt, Brian Gorman,
Jessica Mortimer and Rodrigo Campos; Editing by Dan Grebler)
(To read Reuters Global Investing Blog click on
http://blogs.reuters.com/globalinvesting; for the MacroScope
Blog click on http://blogs.reuters.com/macroscope; for Hedge
Hub click on http://blogs.reuters.com/hedgehub)
