* Dollar hits five-month high against basket of currencies
* Commodities weighed down by stronger greenback
* Russia-Georgia conflict hits emerging, not major markets
(Updates with U.S. markets, adds comments, changes byline,
dateline, previous LONDON)
By Burton Frierson
NEW YORK, Aug 8 (Reuters) - The dollar raced to five-month
highs against a broad range of currencies on Friday as new data
showed economic weakness was spreading to the euro zone while
oil prices slid below $117 a barrel as supply concerns waned.
Escalating violence in Georgia helped send emerging economy
stock markets to their lowest in almost a year. Russia was the
hardest hit as investors suddenly viewed all emerging markets
as riskier. For more see [].
Markets were transfixed by falling oil, though, which
inspired Wall Street to shake off a weak start and pushed major
stock indexes up well over 1 percent. European stocks also
benefited from the improved sentiment.
The rebound in risk appetite hurt safe-haven assets such as
government bonds, as is normally the case. This sent prices
lower on U.S. Treasuries and euro zone government paper, making
their yields, which move in the opposite direction, rise.
"What we are seeing now is oil off, equities are up and
that's dragging Treasury yields up," said T.J. Marta, fixed
income strategist with RBC Capital in New York.
The Dow Jones industrial average <> was up 189.79
points, or 1.66 percent, at 11,621.22. The Standard & Poor's
500 Index <.SPX> was up 17.43 points, or 1.38 percent, at
1,283.50. The Nasdaq Composite Index <> was up 35.40
points, or 1.50 percent, at 2,391.13.
Wall Street largely shrugged off news that Fannie Mae
<FNM.N>, the largest U.S. home funding source, posted a fourth
straight quarterly loss as home loan defaults increased.
The company said it would slash its dividend more than 85
percent and take other steps to shore up its capital position.
For details see [].
Traders were betting the further drop in oil would help
inflation to ease, so stimulating spending by businesses and
consumers and thus restoring corporate profit growth.
U.S. oil prices <CLc1> fell $3.37, or 2.81 percent, to
$116.65 per barrel. Ironically, the market for crude was
responding to worries about weaker demand.
The stronger U.S. dollar also helped, however, outweighing
concerns that an intensifying conflict between Russia and
Georgia could disrupt Caspian energy supplies.
"It seems that we've got a lot of selling based on the
stronger dollar," said Peter Beutel, president of trading
consultants Cameron Hanover in New Canaan, Connecticut.
"Energy demand destruction and the dollar return have
formed a quiet alliance to bring the oil market down, and today
the louder of the two is the dollar."
WEAKNESS IN EUROPE
The dollar was up against a basket of major trading-partner
currencies, with the U.S. Dollar Index <.DXY> up 1.57 percent
at 75.722 from a previous session close of 74.551.
The euro <EUR=> was down 1.82 percent at $1.5042. Against
the yen, the dollar <JPY=> was up 0.66 percent at 110.15.
Data showing Italy's economy shrank in the second quarter
cast a shadow over the euro zone a day after European Central
Bank President Jean-Claude Trichet highlighted risks to growth,
even though he reiterated his concerns about inflation.
Trichet's comments were interpreted by markets as dovish,
sparking a steep fall in bond yields as markets priced out the
risk of another interest rate hike this year.
"There's going to be more speculation of ECB rate cuts
later this year," said Gerhard Schwarz, head of global equity
strategy at UniCredit in Munich.
The recovery in the dollar, which hit a record low against
the euro just last month, also hurt other commodities, which
are priced in the U.S. currency.
Gold prices <XAU=> fell $18.85, or 2.16 percent, to
$853.60. The Reuters/Jefferies CRB Index <.CRB> of commodities
was mired near four-month lows. It was last down 9.08 points,
or 2.27 percent, at 390.46.
In Europe, the FTSEurofirst 300 <> was up 0.65
percent at 1197.85.
In Tokyo, Japan's Nikkei average <> rose 0.3 percent
on Friday, reversing earlier losses. On the day, the Nikkei
gained 43.42 points to end at 13,168.41.
(Additional reporting by John Parry in New York and Ian Chua
in London; Editing by James Dalgleish)
