* Dollar trade-weighted index <.DXY> hits lowest since Jan
* Markets wary of weak US data, further QE from Fed
* Dollar decline lifts commodity prices; oil, gold up
* Higher euro, Irish bank woes hit European stocks, debt
By Mike Dolan
LONDON, Sept 29 (Reuters) - The U.S. dollar extended its
steep decline on Wednesday, clocking losses of more than five
percent for the month, as investors prepared for the Federal
Reserve to print more money to lift the weakening U.S. economy.
Mounting speculation the Fed will embark on a second round
of quantitative easing -- expanding its balance sheet to buy
bonds and others assets -- to prevent a double-dip U.S.
recession sent the dollar to a five-month low against the euro
and a two-year trough against the Australian dollar.
The latest leg of the dollar decline was fuelled by Tuesday's
data that U.S. consumer confidence [] fell to its
lowest in seven months.
Wednesday's contrasting reports of Chinese []
and European [] economic and business sentiment
advancing this month added to pressure on the greenback.
"The market is jumping on QE expectations as it feels the
U.S. data will force the Fed to do something and I think that
will be the case," said Manuel Oliveri, currency strategist at
UBS in Zurich.
The dollar's decline fuelled further gains in commodity
prices, with gold <XAU=> hitting a fresh record high of
$1,313.20 and silver <XAG=> setting its highest in 30 years.
MSCI world equity index <.MIWD00000PUS> and the Thomson
Reuters global stock index <.TRXFLDGLPU> made modest 0.25
percent gains.
Wall St futures <SPZO> were down 0.2 percent and pointed to
a lower opening for U.S. bourses later, after a 0.5 percent gain
in the S&P 500 on Tuesday.
The rising euro's impact on European exporters and further
jitters over the stability of the region's government debt
markets offset the upbeat economic data and knocked European
stocks <> back 0.5 percent. European banks <.SX7P> were
down 1.3 percent.
Sentiment weakened after the Irish Times reported the final
cost of winding down Anglo Irish Bank over a 15-year period may
rise well above 30 billion euros ($40.4 billion) under a worst
case or "stress scenario".
Deutsche Bank <DBKGn.DE>, Societe Generale <SOGN.PA> and
Commerzbank <CBKG.DE> slipped 1.8 to 2.8 percent.
The VDAX-NEW volatility index <.V1XI>, one of Europe's main
barometers of investor anxiety, rose 2.8 percent.
"It's like, if people are bracing for the bad news, that
will trigger a pull-back," says David Thebault, head of
quantitative sales trading at Global Equities.
European debt markets [] were buffeted by the Irish
situation and concern about a vote of confidence in Italy's
government later on Wednesday, a concern for its budget
tightening process and one which sent Italian government debt
premia briefly to their costliest since June.
Debt spreads steadied as the core German goverment bond
yield bounced back later, following data showing European banks
took less cash than expected from the European Central Bank at
its latest tender.
US AND JAPAN MONEY PRINTING
"The backdrop for the dollar continues to deteriorate,"
JPMorgan said, advising clients to seize any bounce in the
dollar as a chance to sell. "The increased focus on QE
(quantitative easing) and the break of several key dollar
support levels maintained the overall bearish bias."
In Asia, where the Bank of Japan's yen sales are also akin
to money printing, Japanese government bond futures hit a
seven-year high while the U.S. Treasury yield curve moved on
Tuesday to its flattest since early September on expectations of
further monetary easing by both central banks. []
Stock markets there found support in the rise in HSBC's
China Purchasing Managers' index to a five-month high as it
indicated rising momentum in China's vast industrial sector.
[]
Asian stocks outside Japan <.MIAPJ0000PUS> rose 0.6 percent,
poised for their biggest monthly gain since July 2009, up 11.8
percent, in what is historically one of the worst months for
stocks.
Japan's Nikkei <> closed up 0.7 percent, helped by
quarter-end window dressing and expectations that the BOJ will
respond to the worsened outlook from Japanese manufacturers by
further easing its policy when it meets on Oct. 4-5.
(Additional reporting by Neal Armstrong and Joanne Frearson in
London, Vikram Subhedar in Hong Kong, Masayuki Kitano and
Charlotte Cooper in Tokyo, editing by Tim Pearce)
