* World equity rally sputters on U.S. corporate outlooks
* U.S. dollar rallies from six-week lows vs euro
* Oil rises above $65 on equity rally, then turns lower
* Bernanke's cautious tone lifts U.S., euro zone bonds
(Updates with U.S. markets activity, changes dateline;
previous LONDON)
By Herbert Lash
NEW YORK, July 21 (Reuters) - The U.S. dollar rebounded
while U.S. stocks retreated on Tuesday after initial gains were
overshadowed by cautious outlooks on the economy from corporate
executives and Federal Reserve Chairman Ben Bernanke.
U.S. government debt prices rose sharply on Bernanke's
sober assessment of a sluggish recovery and comments that an
easy money policy would likely be needed for an extended
period. <For related news click []>.
Crude oil touched a two-week high above $65 a barrel as a
slew of rosy corporate earnings reports fed into hopes for an
economic recovery that could revive global energy demand.
[] But oil later traded lower for the day.
Risk appetite had increased in the past few days after
stronger-than-expected U.S. corporate earnings. The latest to
report higher-than-expected quarterly results was manufacturer
and Dow component Caterpillar Inc <CAT.N> on Tuesday.
But Caterpillar's shares were far off the day's highs after
the company said it expects the third quarter to be the weakest
of the year and "extremely challenging." []
United Technologies Corp <UTX.N>, meanwhile, lowered its
2009 forecast, and the company's top executive said he does not
anticipate a significant economic recovery in 2010.
[]
Earnings driven by cost-cutting were not enough to satisfy
investors looking for higher revenue growth.
"The story (UTX and Caterpillar) put out there is, 'We have
done a great job cutting costs, we've done a great job managing
our business and here's a bottom line beat.' I don't think
that's enough to get this market going," said Stephen Massocca,
managing director at Wedbush Morgan in San Francisco.
"If we don't get some revenue beats this party is going to
end real quick, especially given how overbought we are."
The Dow Jones industrial average <> dipped 4.98 points,
or 0.06 percent, to 8,843.17 in afternoon trading. The Standard
& Poor's 500 Index <.SPX> dropped 4.98 points, or 0.52 percent,
to 946.15. The Nasdaq Composite Index <> fell 11.29
points, or 0.59 percent, to 1,898.00.
European stocks rose for a seventh straight session, led by
mining and energy shares. The FTSEurofirst 300 <> index
of top European shares advanced 0.8 percent to 888.18 points --
its highest close since Jan. 6. The FTSE 100 <> closed
37.55 points higher at 4,481.17 in London.
"I think as much as anything there's a bit of a momentum
effect, which has given our markets a bit of a push," said
Richard Hunter, head of UK equities at Hargreaves Lansdown.
Bernanke, testifying before the House Financial Services
Committee, said U.S. unemployment was likely to remain high
into 2011, which he warned could undermine consumer confidence
and derail a recovery. [].
Andrew Wilkinson, senior market analyst at Interactive
Brokers in Greenwich, Connecticut, said Bernanke's "cautious
tone" threw the dollar a lifeline, especially against the euro,
which earlier climbed to its highest level since early June.
"His bottom-line assessment that the U.S. economy is still
nowhere near ready for a policy reversal flew in the face of
equity market investors who have been busily discounting a
return to growth," said Wilkinson.
The dollar was up against a basket of major currencies,
with the U.S. Dollar Index <.DXY> up 0.10 percent at 78.987.
The euro <EUR=> was down 0.34 percent at $1.4178, while
against the yen, the dollar <JPY=> was down 0.80 percent at
93.44.
Bernanke's testimony indicated interest rates would remain
low for the time being, lifting both U.S. and euro zone
government debt prices.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was up
39/32 in price to yield 3.46 percent. The 2-year U.S. Treasury
note <US2YT=RR> was up 5/32 in price to yield 0.89 percent.
High-yielding euro zone government bonds continued to
outperform core German debt supported by the pickup in risk
appetite over the past week, keeping bond yield spreads at
their tightest in months. []
The 10-year Bunds were off 2.5 basis points at 3.379
percent <EU10YT=RR>, with two-year Schatz yields down a similar
amount at 12.61 percent <EU2YT=RR>.
The early gains in the oil market came alongside a broad
rally in global equities markets.
U.S. light sweet crude oil <CLc1> fell 14 cents to $63.84 a
barrel.
Spot gold prices <XAU=> fell $3.05 to $945.30 an ounce.
Asian shares edged up to another 10-month peak after strong
company earnings. The MSCI index of Asia-Pacific shares outside
Japan <.MIAPJ0000PUS> edged up 0.4 percent. Japan's Nikkei
average <> rose 2.6 percent.
(Reporting by Rodrigo Campos, Gertrude Chavez-Dreyfuss, Burton
Frierson in New York; Kirsten Donovan, Barbara Lewis and David
Sheppard in London and Peter Starck in Frankfurt; writing by
Herbert Lash; Editing by Kenneth Barry)
