GLOBAL MARKETS-Dollar down as monetary stimulus seen in pipeline

                                
 * US dollar trade-weighted index hits lowest since Jan
                                
 * Euro reaches five-month high versus dollar
                                
 * Gold extends rally, tops $1,313 an ounce
                                
 * Markets wary of weak US data, further QE from Fed
 (Updates first paragraph, prices, adds comment)
                                
 By Daniel Bases
                                
 NEW YORK, Sept 29 (Reuters) - Rising expectations central
banks will step up monetary stimulus to support fragile
economies drove the dollar to a five-month low against the euro
on Wednesday and helped gold extend its record breaking rally.
                                
 U.S. equity markets gyrated in and out of positive
territory on light trading volumes, while European shares ended
lower. Oil rallied after a report showed low inventories for
crude and related products. [ID:nN29198208]
                                
 There is mounting speculation the U.S. Federal Reserve may
engage in quantitative easing -- a process of buying up bonds
and other assets to put fresh cash into the economy rather than
through lower borrowing costs -- sooner rather than later.
                                
 "The dollar currently is in a lose-lose situation where if
U.S. data is disappointing, it increases the prospects of Fed
easing and that weighs on U.S. rates and the dollar," said
Brian Dolan, chief currency strategy at Forex.com in
Bedminster, New Jersey.
                                
 "If the U.S. data comes in better than expected, then risk
is back on, then the dollar is shunned as a safe-haven
currency," he said.
                                
 Last week, the Fed said it was prepared to put more money
into the economy if needed to stimulate the recovery and avoid
deflation. The Fed's benchmark interest rate is already at zero
to 0.25 percent, leaving no room to stimulate through
conventional measures.
                                
 Spot gold <XAU=> edged up to a record high of $1,313.20 and
silver <XAG=> set its best level in 30 years at $22.00 an
ounce.
                                
 Wednesday's contrasting reports of Chinese and European
 economic and business sentiment advancing this month added to
pressure on the greenback.  [ID:nTOE68S046] [ID:nLDE68S0LU]
                                
 STOCKS SLIP
                                
 On Wall Street, the Dow Jones industrial average <.DJI>
fell 9.99 points, or 0.09 percent, at 10,848.15. The Nasdaq
Composite Index <.IXIC> dropped 1.57 points, or 0.07 percent,
at 2,378.02
                                
 The Standard & Poor's 500 Index <.SPX> lost 1.45 points, or
0.13 percent, at 1,146.25. However, for the month the index is
up nearly 9 percent, its best monthly performance since May
2009 and before that the best showing since March 2000.
                                
 Hewlett-Packard Co <HPQ.N> rose 2.6 percent to $42.72 after
the computer and printer maker forecast 2011 profits above
estimates. For details, see [ID:nN28273797]
                                
 European shares closed lower.
                                
 The FTSEurofirst 300 <.FTEU3> index of top European shares
fell 0.55 percent to close at 1064.88. Weaker retail shares
after disappointing figures from Swedish fashion group Hennes &
Mauritz <HMb.ST>, the world's third-largest clothing retailer,
proved a drag on market sentiment.
                                
 European banks <.SX7P> were down 1.3 percent.
                                
 Japan's Nikkei <.N225> closed up 0.7 percent, helped by
quarter-end "window dressing" positioning 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.
                                
 MSCI world equity index <.MIWD00000PUS> and the Thomson
Reuters global stock index <.TRXFLDGLPU> both rose slightly.
                                
 For graphic on world asset market performance in Q3 and
YTD: http://graphics.thomsonreuters.com/F/09/GLB_MKTQE.html
                                
 CURRENCIES AND DEBT
                                
 The dollar's weakness against the euro and the yen puts
more pressure on exporters in Europe and Japan. The outlook
isn't likely to change, said one bank.
                                
 "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."
                                
 The greenback fell versus major currencies, with the U.S.
Dollar Index <.DXY> down 0.33 percent at 78.753.
                                
 The euro <EUR=> rose 0.30 percent at $1.362. The dollar
fell 0.35 percent to 83.59 yen <JPY=>.
                                
 The threat of quantitative easing helped push the greenback
to a two-year trough against the Australian dollar and a
2-1/2-year low versus the Swiss franc.
                                
 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.
                                
 Benchmark 10 year U.S. Treasuries <US10YT=RR> were off 9/32
of a point in price, yielding 2.5 percent.
 (Additional reporting by Gertrude Chavez-Dreyfuss, Edward
Krudy, Mike Dolan, Neal Armstrong, Joanne Frearson, Vikram
Subhedar, Masayuki Kitano and Charlotte Cooper; Editing by
Kenneth Barry)