(Adds opening of U.S. markets, byline; dateline previous
LONDON)
By Herbert Lash
NEW YORK, March 20 (Reuters) - Gold and oil fell sharply on
Thursday as investors dumped commodities and lifted U.S. stocks
on the view that inflation could moderate if the trend in
futures markets continues.
The dollar rose to a week-high against the euro as
investors fleeing commodities repatriated their cash into the
beleaguered U.S. currency. The sharp drop of the dollar this
year has given a major lift to commodities denominated in the
U.S. currency.
Treasury debt prices mostly slipped but the shortest-dated
government instruments rallied again amid a powerful safe-haven
bid on the exodus out of commodities.
European stocks pared losses, bolstered by gains on Wall
Street following a better-than-expected survey on factory
activity in the U.S. mid-Atlantic region, but commodity-related
stocks and banking shares kept indexes in negative territory.
Oil fell below $100 a barrel for the first time in two
weeks, extending a hefty sell-off the previous day on growing
concerns that a slowdown in top consumer the United States
would undermine global demand for energy.
"We continue to see profit-taking among commodities. There
are also macro-economic concerns about the economy and the
dollar has been doing better," said Mike Wittner, global head
of oil market research in London for Societe Generale.
Gold <XAU=> dropped more than 4 percent to a one-month low,
while platinum slid more than 5 percent to the lowest since
early February as funds cashed in.
Oil, gold and other commodities had been hitting a series
of record highs this year as investors took refuge in
dollar-denominated assets amid the carnage in stock markets.
Crude oil <CLc1> hit a record $111.80 a barrel on Tuesday
and gold hit a record $1,030.80 an ounce on Monday.
Investors nervous about weakening demand in a sagging
economy are cashing in on the recent record prices. Oil and
gold both are down more than 10 percent since hitting records
earlier in the week.
"People have done very well in commodities and they may be
doing badly elsewhere," said Ian Morley, chief executive at
fund manager Dawnay Day Brokers.
"Prices in the long term may be going higher, but the
recent rise has been speculative and we've run out of
fundamentals to explain it," Morley said.
As investors slashed their "long" exposure to commodities,
they covered "short" positions in the dollar, which lifted the
currency from historic lows charted earlier this week.
"Commodity markets and currencies are very interconnected
and as we see the system deleverage positions in oil and gold,
the dollar is bouncing back," said Camilla Sutton, a currency
strategist at Scotia Capital in Toronto.
The Dow Jones industrial average <> was up 107.79
points, or 0.89 percent, at 12,207.45. The Standard & Poor's
500 Index <.SPX> was up 10.74 points, or 0.83 percent, at
1,309.16. The Nasdaq Composite Index <> was up 13.69
points, or 0.62 percent, at 2,223.65.
Crude's fall helped relieve worries about the effect of
higher prices on consumers and businesses. Shares of retailer
Wal-Mart Stores Inc <WMT.N> rose 3.64 percent to $52.63.
European shares pared losses on the Philly Fed survey, but
closed lower. The FTSEurofirst 300 <> index of top
European shares closed 0.3 percent lower at 1,227.03 points.
Credit Suisse <CSGN.VX>, which issued a profit warning, was
down 7 percent, Total <TOTF.PA> down 2.2 percent and Rio Tinto
<RIO.L> down 4.6 percent.
Credit Suisse said big debt write-downs and tough markets
made it unlikely that the bank would be profitable in the first
quarter. But it did say the surprise trading hit it announced
in February was not as bad as previously thought.
The Philly Fed report helped the dollar to extend gains
versus the yen and the euro.
The euro was down 1.4 percent at $1.5419, well off Monday's
record $1.5904, and chalking up its steepest one-day fall since
early February.
The dollar erased earlier gains versus the yen and last
traded little changed at 98.78 yen <JPY=>,
Benchmark U.S. government securities yields, which move
inversely to their prices, traded not far above two month lows
amid deep concerns about the troubled credit markets.
Yields of ultra short-dated Treasury bills, deemed the
safest U.S. government securities, were at their lowest levels
in more than five decades as investors continued this week's
exodus from falling commodities into the safety of cash.
"Clearly the bill market is just on fire, from the tone of
flows moving into that sector," said Marty Mitchell, head of
government bond trading at Stifel Nicolaus & Co. in Baltimore.
He cited a continuing "unwind of the premium we saw in
commodities."
The 3-month U.S. Treasury bill yield traded just above 0.5
percent <US3MT=RR>. The benchmark 10-year U.S. Treasury note
was down 6/32, with the yield at 3.3503 percent.
In Asia, resource and mining stocks fell, while renewed
credit crisis fears also dragged down indexes across the region
a day after investors had cheered hefty U.S. interest rate cuts
and resilient results from leading U.S. investment banks.
MSCI's measure of Asian stocks outside Japan
<.MIAPJ0000PUS> fell 2.19 percent.
Key stock market indexes in Australia <> and Hong Kong
<> dropped more than 3 percent as resource firms such as
BHP Billiton <BHP.AX>, the biggest miner, and Petrochina
<0857.HK>, the most valuable energy producer, slumped.
Markets in Japan and other Asian countries were closed for
holidays, and most will remain closed on Friday.
(Additional reporting by Caroline Valetkevitch, John Parry
and Vivianne Rodrigues in New York, and Pratima Desai, Maryelle
Demongeot and Anna Ringstrom in London. Editing by Richard
Satran)
