* Commodity prices sell off, gold under $1,400 an ounce
* U.S. dollar gains on higher risk tolerance
* U.S. factory orders data rises in November
* European share gains cut by weak open on Wall Street
(Recasts with U.S. market open, changes dateline, byline)
By Daniel Bases
NEW YORK, Jan 4 (Reuters) - The U.S. dollar rose on
Tuesday, knocking the euro from a three-week peak and pulled
gold prices sharply lower as upbeat manufacturing data helped
lift investor risk appetite, though Wall Street struggled to
maintain gains.
Weak consumer stocks on Wall Street and a prediction by
Morgan Stanley that the benchmark S&P 500 will lose ground in
2011 weighed on sentiment a day after the S&P 500 and the Dow
hit two-year highs.
Shares in Europe, where many of the major markets played
catch-up after a holiday on Monday, rose on Tuesday, propelled
by gains in energy and mining shares as commodity prices rose.
An unexpected increase in U.S. factory orders in November
reported on Tuesday underpinned recent evidence that the
economic recovery was on a sustainable path. Orders excluding
transportation recorded their largest gain in eight months.
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"No reason that the (U.S.) market is down other than it is
up a lot. The news is good, but you could get a 4-5 percent
correction out of nowhere only because stocks are up a lot. But
the forward momentum is likely positive, supported by
increasingly good news in the economy," said Jim Awad, managing
director of Zephyr Management in New York.
The U.S. factory orders report dovetailed with stronger
U.S., Chinese and European PMI manufacturing data reported in
recent days and helped lift risk sentiment, along with the
"January effect" that occurs as fund managers dispense with the
need to settle end-of-year balances.
Spot gold prices tumbled below $1,400 an ounce, losing
$28.05, or 1.98 percent, to $1,385.70 <XAU=>.
"Pressure (on gold) is expected to return over the next
week or two based on our expectation for a reversal in oil
prices, gains in the stock market and general stability in the
dollar," MF Global said in a note.
Copper fell from a record high hit on Monday, dropping 7.70
cents, or nearly 2 percent to $4.38 per pound in New York trade
<HGc1>. Crude oil prices <CLc1> fell $2.43, or 2.65 percent, to
$89.12 per barrel.
In currency markets, the unexpectedly strong U.S. factory
numbers weighed on the euro, with further pressure likely given
doubts over the euro area's bond issuance.
In midday New York trading, the euro was down 0.3 percent
from late on Monday at $1.3306 <EUR=EBS> after hitting
three-week peaks at $1.3435.
The dollar gained 0.35 percent to 82 yen. Against a basket
of major trading partner currencies, the greenback rose 0.36
percent <.DXY>.
STOCKS
In late morning trade, the major indexes were mixed. The
Dow Jones industrial average <> rose 10.22 points, or 0.09
percent, to 11,680.97. However, the Standard & Poor's 500 Index
<.SPX> fell 3.42 points, or 0.27 percent, to 1,268.45. The
Nasdaq Composite Index <> lost 13.24 points, or 0.49
percent, at 2,678.28.
Morgan Stanley forecast a base case year-end target for the
S&P 500 at 1,238, below the close for 2010. The firm's
risk-reward scenario for 2011 was "skewed to the negative."
Sentiment was also dented by worries that rising food costs
will sap supermarket profits, denting growing optimism about
the economic outlook.
Shares of Supervalu Inc <SVU.N> tumbled 8.2 percent after
Morgan Stanley told investors to cut holdings in the stock,
saying rising food costs will crimp margins. Safeway Inc
<SWY.N> and Whole Foods Market <WFMI.O> also slid. Soybean and
corn prices traded near two-year highs on Tuesday.
Borders Group Inc <BGP.N> dropped 8.7 percent to 88 cents,
a day after two top executives at the bookstore chain resigned.
For details, see []
European shares hit their highest closing level in nearly a
week on Tuesday. The pan-European FTSEurofirst 300 <>
index provisionally closed 0.8 percent higher at 1,140.77
points, with Britain's FTSE 100 <>, which has a large
proportion of commodity shares, rising 1.7 percent on its first
trading day of the year.
The MSCI All-Country World index <.MIWD00000PUS> gave up
its early lead to drop 0.12 percent.
Earlier, Japan's Nikkei <> began the year with a 1.7
percent climb to a 7-1/2 month closing high.
U.S. benchmark 10-year Treasuries were up just 2/32 of a
point in price to yield 3.32 percent <US10YT=RR>.
(Additional reporting by Jeremy Gaunt, Rodrigo Campos, Anirban
Nag and Brian Gorman; Editing by Leslie Adler)
