* U.S. dollar falls to 2009 low as rating worries persist
* Government debt slides as investors sour on U.S. outlook
* U.S. stocks rise on dollar play over multinationals
* Oil slips below $61 on worries about U.S. fiscal outlook
(Updates with U.S. markets activity; changes dateline,
previous LONDON)
By Herbert Lash
NEW YORK, May 22 (Reuters) - The U.S. dollar dropped to its
lowest level this year and government bonds fell further on
Friday as concerns mounted about rising U.S. debt levels after
investors questioned the strength of its AAA credit rating.
The dollar, on track for its biggest weekly fall in two
months, took the brunt of growing worries about the U.S. fiscal
outlook after Standard & Poor's on Thursday said it might cut
Britain's AAA credit rating because of soaring public debt.
Oil slipped below $61 a barrel on credit worries related to
the United States, the world's top energy consumer, but losses
were limited by data suggesting Chinese oil demand jumped 3.9
percent in April. For details: []
Yet U.S. stocks rose as investors snapped up shares of
multinationals, including McDonald's Corp, in anticipation a
weaker dollar would underpin profitability from abroad.
A leading index of European shares ended lower for a second
day in a row even as benchmark indexes in Britain, Germany and
France ended higher.
Gold prices climbed to a fresh two-month high, breaching
$960 an ounce for the first time since late March, as the
dollar's slide boosted buying of bullion as a currency hedge.
"The general theme today is clearly broad-based U.S. dollar
weakness, largely triggered by mounting concerns over the U.S.
government debt triple-A rating," said Omer Esiner, senior
market analyst at Travelex Global Business Payments in
Washington.
Shares of energy companies on both sides of the Atlantic
rose, helping boost the broader U.S. and UK equity markets on
bets that overseas demand would support energy prices.
A weaker dollar can make U.S. assets more appealing to some
investors, and multinationals benefit when they convert
overseas earnings into dollars.
Trading volumes were thin ahead of long U.S. and British
public holiday weekends.
Shares of Sears Holdings Corp <SHLD.O were up almost 16
percent and a top boost on Nasdaq one day after the owner of
the Sears and Kmart chains posted a surprise quarterly profit.
For details, see [])
"Investors are coming to a realization that interest rates
are heading higher and the dollar is going to be under
pressure," said Alan Lancz, president of Alan B. Lancz &
Associates Inc, an investment advisory firm based in Toledo,
Ohio.
"Energy is moving as China continues to stockpile and buy
all the commodities they can," Lancz said. "I think you have
that play of a weaker dollar and stronger commodities right
now. Multinationals are going to be big plays, anybody doing
anything overseas."
At 1 p.m., the Dow Jones industrial average <> was up
56.71 points, or 0.68 percent, at 8,348.84. The Standard &
Poor's 500 Index <.SPX> was up 5.41 points, or 0.61 percent, at
893.74. The Nasdaq Composite Index <> was up 10.65 points,
or 0.63 percent, at 1,705.90.
The FTSEurofirst 300 <> index of top European shares
ended down 0.18 percent at 856 points.
Yields on benchmark U.S. and European government debt rose,
with U.S. Treasuries rising to six-month highs as bunds and UK
gilts sold off. At the height of selling, yields of U.S.
10-year notes <US10YT=RR> hit 3.45 percent, their highest since
November.
The price on the U.S. 10-year note was down 19/32 in price.
The 2-year U.S. Treasury note <US2YT=RR> was down 1/32, with
the yield at 0.89 percent.
The S&P warning about Britain's AAA credit rating sparked
worries of possible similar rumblings for the U.S. Treasury.
"The question is, is this a warning shot or is it the start
of a trend? This is very dangerous territory," said Axel Merk,
president and chief investment officer at Merk Mutual Funds.
June Bund futures <FGBLM9> fell for a third week in a row
and were 95 ticks lower from Thursday's settlement close at
120.23, although almost flat at the official after-hours
close.
The dollar fell against major currencies, with the U.S.
Dollar Index <.DXY> off 0.68 percent at 79.919. Against the
yen, the dollar <JPY=> fell 0.04 percent at 94.41.
The euro <EUR=> rose 0.95 percent at $1.4024.
U.S. light sweet crude oil <CLc1> fell 7 cents percent, to
$60.98 a barrel.
Spot gold prices <XAU=> rose $4.00 to $957.40 an ounce.
Asian shares lost ground after gaining initially. The MSCI
index for Asian stocks outside Japan <.MIAPJ0000PUS> fell 0.8
percent, but were on track to finish the week about 3.3 percent
higher. The Nikkei average <> fell 0.4 percent on Friday.
(By Ellis Mnyandu, Wanfeng Zhou, Pedro Nicolaci da Costa in
New York; Sitaraman Shankar, Kirsten Donovan, Ikuko Kao, David
Sheppard and Jan Harvey in London; writing by Herbert Lash)
