(Recasts with U.S. markets; changes dateline; previous
LONDON)
By Herbert Lash
NEW YORK, May 1 (Reuters) - The dollar surged to a
five-week high on Thursday against the euro, knocking
commodities prices lower and lifting U.S. stocks in a rally led
by technology bellwethers Apple Inc <AAPL.O> and IBM <IBM.N>.
Oil prices fell sharply as the dollar rose and Nigerian
supply that had been disrupted was expected to resume following
negotiations with unions to end a strike.
U.S. economic data suggested the Federal Reserve would put
its monetary easing on hold, lifting the dollar against the
euro and to a seven-week high against a basket of major trading
currencies.
Investors took heart in the positive aspects of U.S.
spending and core inflation data, as well as a manufacturing
survey for April.
They also shrugged off higher-than-expected U.S. initial
jobless claims a day after the Federal Reserve cut a benchmark
interest rate to 2 percent to stimulate the flagging economy.
The Fed said it was worried about rising inflation
expectations, suggesting an aggressive rate-cutting campaign
was on hold. That helped bolster the dollar.
"The most important thing right now is the U.S. dollar,"
said Tim Smalls, head of U.S. stock trading at brokerage firm
Execution LLC in Greenwich in Connecticut.
"As long as the dollar continues to rally as it's doing
right now, commodities are going to come off and the inflation
scare gets mitigated slightly."
Shares of Apple gained 2.5 percent and BlackBerry devices
maker Research In Motion Ltd <RIM.TO><RIMM.O> jumped 4 percent
in New York, pushing the tech-rich Nasdaq up 2 percent.
International Business Machines Corp, a tech services
company, led the Dow's climb with a 2.2 percent gain.
As tech shares gained, energy companies' stocks fell, a
trend aided by disappointing quarterly results from oil company
Exxon Mobil Corp <XOM.N>, whose shares fell 4.8 percent.
At midday, the Dow Jones industrial average <> was up
124.82 points, or 0.97 percent, at 12,944.95. The Standard &
Poor's 500 Index <.SPX> was up 15.67 points, or 1.13 percent,
at 1,401.26. The Nasdaq Composite Index <> was up 56.06
points, or 2.32 percent, at 2,468.86.
U.S. Treasury debt prices turned negative as a rally in
stocks gained strength, in part because the stronger dollar
eased some investor worries about high energy costs and
inflation.
The benchmark 10-year U.S. Treasury note <US10YT=RR> fell
8/32 to yield 3.76 percent. The 2-year U.S. Treasury note
<US2YT=RR> fell 6/32 to yield at 2.36 percent. The 30-year U.S.
Treasury bond <US30YT=RR> fell 11/32 to yield 4.50 percent.
European shares ended flat as vague merger and acquisition
chatter supported miners, while consolidation hopes helped
propel British Airways <BAY.L> higher.
The pan-European FTSEurofirst 300 index <> ended up
0.1 percent at 1,339.02 points, with British shares unchanged
at 6,087.3.
Despite falling metal prices, Xstrata <XTA.L> and Anglo
American <AAL.L> gained about 2 percent each.
British Airways <BAY.L> climbed 7.3 percent after the
airline said late on Wednesday it was in discussions with two
of its largest U.S. rivals, which a source briefed on the
matter said was about a potential alliance.
Investors shrugged off data showing that growth in
Britain's manufacturing sector slowed in April, as expected.
But there was no let-up in inflationary pressures as firms
ratcheted up prices at the fastest rate on record.
Investors also were optimistic after the Bank of England
said the scale of losses and the economic fallout from the
global credit crunch may not be as bad as feared and subprime
losses could end up costing less than half market forecasts.
In the United States, manufacturing contracted for a third
straight month in April and the number of workers claiming
jobless benefits hit a four-year high in the latest week. But
that was offset a bit by data showing personal spending in
March was stronger than expected.
"It looks like we came in slightly above expectations, so
this number is consistent with positive growth in the economy,"
said Michael Darda, chief economist at MKM Partners LLC in
Greenwich, Connecticut.
"The idea that (a slowdown) is a deep and long collapse is
just flatly incorrect. There's no evidence of that."
Oil prices fell. U.S. light sweet crude oil <CLc1> fell
$2.84, or 2.5 percent, to $110.62 per barrel.
The dollar gained against major trading-partner currencies,
with the U.S. Dollar Index <.DXY> up 0.91 percent at 73.269.
The euro <EUR=> fell 1.02 percent at $1.5456, and against
the yen, the dollar <JPY=> rose 0.28 percent at 104.21.
Gold slipped to a four-month low below $850 an ounce as a
the dollar's sharp rise lowered gold's appeal as an alternative
investment and triggered a sell-off in precious metals. In
midday New York trading, spot gold prices <XAU=> were down
$19.95, or 2.29 percent, at $850.00.
Silver and palladium hit three-month lows, while platinum
shed 3 percent to a one-month low below $1,850 an ounce.
In Asia, Japanese stocks retreated as investors booked
profits following the market's biggest month of gains in 13
years. The Nikkei average <> slipped 0.6 percent.
(Reporting by Ellis Mnyandu and Gertrude Chavez-Dreyfuss in
New York and Michael Taylor, Ikuko Kao, Tamora Vidaillet and
Atul Prakash in London; Editing by Dan Grebler)
