* Dollar rises on Bernanke comments on tighter policy
* Bonds tumble after Bernanke talks up exit strategy
* Oil falls as Bernanke outweighs outlook for demand
(Updates to U.S. markets, changes dateline; previous LONDON)
By Herbert Lash
NEW YORK, Oct 9 (Reuters) - The U.S. dollar rose from a
14-month low on Friday after Federal Reserve Chairman Ben
Bernanke said the U.S. central bank will be ready to tighten
monetary policy, sparking a sell-off in bond markets.
Gold, which nearly always moves inversely to the dollar,
eased after hitting record highs for three straight sessions as
Bernanke's comments late Thursday lifted the dollar index, a
basket of six other major currencies.
The U.S. Dollar Index <.DXY> rose 0.6 percent at 76.433.
The stronger dollar pushed oil down toward $71 a barrel and
outweighed a positive demand outlook from the International
Energy Agency, which earlier had lifted crude prices above $72.
For details see [].
Bernanke's comments raised fears among investors that the
Fed was closer to hiking interest rates than previously
thought, sparking the biggest bond sell-off in over a month.
The benchmark 10-year U.S. Treasury note <US10YT=RR> fell
1-4/32 in price to yield 3.39 percent.
A lackluster U.S. 30-year bond auction on Thursday reminded
both investors and officials that given a weak currency,
foreign appetite for U.S. assets has its limits.
Bernanke "is still talking about an extended period of low
rates but any time they use the tightening word it just brings
to mind the fact maybe we're getting closer to the start of
that whole cycle," said Rick Klingman, managing director of
U.S. Treasury trading at BNP Paribas in New York.
U.S. stocks staged modest gains, lifted by supportive
comments on technology bellwethers before key earnings reports
are released next week. []
Shortly after 1 p.m. (1700 GMT), the Dow Jones industrial
average <> was up 40.58 points, or 0.41 percent, at
9,827.45. The Standard & Poor's 500 Index <.SPX> was up 2.54
points, or 0.24 percent, at 1,068.02. The Nasdaq Composite
Index <> was up 8.99 points, or 0.42 percent, at
2,132.92.
But Bernanke's comments also weighed on European shares,
which closed lower. Even though the Fed's vast support for the
U.S. economy will likely be needed for some time, it will have
to remove those measures as the economy heals, to ward off any
threat of inflation. []
"It looks like the comments from Bernanke suggesting the
Fed is positioning itself to raise rates at some point has been
weighing on stocks. But I think it is a slight overreaction,"
said Peter Dixon, economist at Commerzbank.
The pan-European FTSEurofirst 300 <> index of top
shares closed down 0.3 percent at 998.17.
Telefonica's <TEF.MC> disappointing results weighed on the
telecommunication sector, and mining stocks fell, tracking a
fall in metal prices.
Copper eased from three-week highs hit the previous session
as doubts resurfaced over whether further gains are possible
given prices have nearly doubled this year. Copper for
three-month delivery <MCU3> on the London Metal Exchange traded
at $6,250 a tonne.
"Bernanke put the brakes on the market by supporting the
dollar," said Alex Heath, head of base metals at RBC Capital
Markets.
U.S. crude for November delivery <CLc1> climbed 8 cents to
$71.77 a barrel. London Brent crude <LCOc1> rose 9 cents to
$69.86.
"The oil market today is sort of trying to balance the
competing influences -- the dollar and the stock market. But at
the end of the day it looks like the dollar's influence will
hold after the greenback reacted to Bernanke's comments," said
Brad Samples, an analyst at Summit Energy in Louisville,
Kentucky.
The euro <EUR=> was down 0.55 percent at $1.4707, and
against the yen the dollar <JPY=> was up 1.50 percent at 89.74
yen.
Asian shares hit a new 14-month high on investor optimism
over the global economy.
Japan's benchmark Nikkei average <> rose 1.9 percent,
and the MSCI index of Asia-Pacific stocks outside Japan
<.MIAPJ0000PUS> edged up 0.3 percent to extend the week's gains
of about 4.7 percent to hit a 14-month high of 402.16.
(Reporting by Ryan Vlastelica, Burton Frierson, Wanfeng Zhou
and Rebekah Kebede in New York and Joanne Frearson and George
Matlock in London; Writing by Herbert Lash; Editing by James
Dalgleish)
