* US stocks reverse gains; retailers fall on yuan concerns
* Commodities pare gains over yuan's uncertainty
* U.S. dollar rises broadly as risk-currency rally fades
By Manuela Badawy
NEW YORK, June 21 (Reuters) - U.S. stocks fell and metals
and oil prices pared gains on Monday on uncertainty over how
much the China would let the yuan rise after it vowed to allow
a more flexible exchange rate .
China's move over the weekend initially ignited a wave of
euphoria across financial markets on optimism that a stronger
yuan would lift China's purchasing power for foreign goods such
as commodities, a boon to the global economy given China's huge
demand for raw materials.
Spot yuan <CNY=CFXS> climbed to its highest level against
the dollar since its last revaluation in July 2005 in a clear
signal that Beijing was sticking to its word that it would
allow greater currency flexibility. For details, see
[]
But as trading progressed, markets gave back much of their
gains on worries that China may do little to its currency that
could be meaningful for the global economic recovery in the
short term.
The U.S. dollar rose late in the day as investors took
profits from a risk-currency rally, while the Australian and
New Zealand dollars, considered part of the commodity bloc,
paired gains as the yuan-induced euphoria faded.
Copper and oil prices, which surged on expectations of
increased appetite for natural resources in the world's
third-largest economy, gave back about half their earlier
gains.
"It's basically inertia where the moves are not progressing
and people have turned around and took it the other way. I
would say the lack of follow-through after the China-fueled
rally is leading to some risk aversion," said Brian Dolan,
currency strategist at Forex.com in Bedminster, New Jersey.
"I think people are concluding that the China news would be
a minor thing primarily for diplomatic window-dressing. China
is doing this ahead of the G20 meeting primarily to defuse the
situation there and hope that the G20 talks about other
things."
Easing the currency peg is a move to allow China's economy
to be driven less by the export of goods abroad and more by
domestic consumer spending. The move came ahead of a meeting
next week of the Group of 20 leading industrialized and
developing economies, where global trade imbalances are
expected to be a key issue.
U.S. stocks ended lower, reversing gains that earlier had
driven the three major indexes up by more than 1 percent.
The Dow Jones industrial average <> closed down 8.23
points, or 0.08 percent, at 10,442.41. The Standard & Poor's
500 Index <.SPX> fell 4.31 points, or 0.39 percent, at
1,113.20. The Nasdaq Composite Index <> dropped 20.71
points, or 0.90 percent, at 2,289.09.
"The announcement was considered to be constructive, but
markets were unable to sustain that euphoria as they looked at
the details," said John Brady, senior vice president at MF
Global in Chicago.
Mining and energy shares shed most of their early steep
gains. Caterpillar Inc <CAT.N> which had gained as much as 2.6
percent, ended up just 0.2 percent at $66.07. Freeport-McMoRan
Copper & Gold Inc <FCX.N> which jumped 6 percent, closed up
2.18 percent to $68.08. For a factbox []
Retailers took a pounding on expectations that flexibility
in the yuan would lead to higher costs on imports from China.
Dow component Wal-Mart Stores Inc <WMT.N> fell 1 percent to
$51.02. The S&P retail index <.RLX> shed 1.7 percent.
"It seems everything in the low-cost retailers is made in
China," said Brian Gendreau, market strategist affiliated with
Financial Network Investment Corporation in El Segundo,
California.
The MSCI world equity index <.MIWD00000PUS> rose 1.6
percent, while the FTSEurofirst 300 index <> rose for a
ninth straight session to close 1 percent higher at 1,055.38
points, the highest close since early May, with basic resources
stocks the biggest gainers.
Emerging stocks <.MSCIEF> added 2.4 percent to a six-week
high, while emerging sovereign debt spreads <11EMJ> tightened 8
basis points to 303 bps, their narrowest in five weeks.
U.S. crude oil <CLc1> ended up 0.83 percent at $77.82 a
barrel, while spot gold <XAU=> fell nearly 2 percent, its
biggest one-day drop in more than a month after a sudden
decline of the euro prompted investors to take profits from
all-time highs set earlier.
China is the world's second biggest energy consumer after
the United States.
Copper prices gave back some of its earlier gains as China,
the world's largest consumer of industrial metals, may do
little to its currency of meaningful effect in the short-term.
"That's why people are a bit cautious," said Wayne Atwell,
managing director at New York-based investment bank Casimir
Capital LP. "If it's 10 percent, then it's a different story
altogether."
Benchmark lead <CMPB3> on the London Metal Exchange touched
$1,837.75 a tonne, its highest since May 28, before closing at
$1,833, up $88. Tin <CMSN3> reached $18,250, matching a high on
May 28, before closing at $17,800/17,900 from $17,450.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Full yuan coverage []
Unlocking the yuan http://china.thomsonreuters.com/yuan/
Graphic on yuan movements http://r.reuters.com/sut87k
Insider TV
-- Yuan to rise before G20
http://link.reuters.com/jes92m
-- Yuan NDFs overshoot http://link.reuters.com/jup72m
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
The single European currency initially extended last week's
recovery against the dollar, at one point rising to a one-month
high, but gains faded as the New York session got under way.
The euro was last down 0.52 percent at $1.2320 <EUR=>. The
dollar rose against a basket of major trading-partner
currencies, with the U.S. Dollar Index <.DXY> up 0.30 percent
at 85.953.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was
down 6/32, with the yield at 3.2469 percent. The 2-year U.S.
Treasury note <US2YT=RR> was down 1/32, with the yield at
0.7175 percent. The 30-year U.S. Treasury bond <US30YT=RR> was
down 10/32, with the yield at 4.1653 percent.
Breaking the peg might mean China needs to buy less U.S.
dollars in intervention, which would leave it with fewer
dollars to buy U.S. Treasuries, but also give it less need to
diversify its holdings into currencies like the euro.
(Additional reporting by Gertrude Chavez-Dreyfuss, Ryan
Vlastelica, Barani Krishnan and Frank Tang in New York; Editing
by Leslie Adler)
