* U.S. dollar falls to 2009 low as rating worries persist
* Government debt slides as investors sour on U.S. outlook
* Oil, gold, copper other commodities rise on weak dollar
* U.S. stocks end lower after quiet day
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, May 22 (Reuters) - U.S. stocks slid, the dollar
dropped to a 2009 low and government bonds fell further on
Friday on worries over rising U.S. debt levels after investors
questioned the strength of its AAA credit rating.
The U.S. 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.
The weak dollar helped push up commodities prices,
including oil, gold and copper, and buoyed U.S. stocks as
investors bought multinationals and the stocks of natural
resource companies in anticipation a weaker dollar would
underpin profitability from abroad.
The euro broke above $1.40 and sterling hit a 6 1/2-month
peak versus the dollar while U.S. stocks, after rising for most
of the session, slid before trading ended -- their fourth
straight day of declines.
"The general theme today is clearly broad-based U.S. dollar
weakness, largely triggered by mounting concerns over the U.S.
government debt AAA rating," said Omer Esiner, senior market
analyst at Travelex Global Business Payments in Washington.
A weaker dollar can make U.S. assets more appealing to some
investors, and companies with operations abroad benefit when
they convert overseas earnings into dollars.
Trading volumes were thin in financial markets ahead of
long weekends because of U.S. and British public holidays.
"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."
The Dow Jones industrial average <> fell 14.81 points,
or 0.18 percent, at 8,277.32. The Standard & Poor's 500 Index
<.SPX> fell 1.33 points, or 0.15 percent, at 887.00. The Nasdaq
Composite Index <> fell 3.24 points, or 0.19 percent, at
1,692.01.
The FTSEurofirst 300 <> index of top European shares
ended down 0.18 percent at 856 points, but benchmark indexes in
Britain, Germany and France ended higher.
Oil prices rose on the weak dollar and data showing an
increase in Chinese demand, which offset worries about the
fiscal outlook for the Unites States, the world's top energy
consumer. For details: []
Support also came from late short-covering ahead of the
long weekend, which will keep U.S. markets shut on Monday.
U.S. crude futures <CLc1> settled up 62 cents at $61.67 a
barrel, while London Brent <LCOc1> rose 85 cents to settle at
$60.78 a barrel.
"We can say China oil demand news was supportive, but it
appears the dollar falling to new lows for 2009 is providing
the main support for crude this morning," said Tom Bentz,
analyst at BNP Paribas Commodities Futures Inc in New York.
Gold climbed to a 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.
U.S. gold futures for June delivery <GCM9> settled up $7.70
at $958.90 an ounce in New York.
Silver posted the biggest percentage gains among precious
metals, climbing to a nine-month peak of $14.83, as investors
turned to the metal as a cheaper alternative to gold.
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 hit 3.45 percent, their highest since November.
The price on the U.S. 10-year note <US10YT=RR> fell 19/32
in price, while the 30-year bond <US30YT=RR> at one point was
down more than a full point, its yield rising to 4.39 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.
The dollar fell against major currencies, with the U.S.
Dollar Index <.DXY> off 0.51 percent at 80.058. Against the
yen, the dollar <JPY=> was up 0.38 percent at 94.81.
The euro <EUR=> rose 0.72 percent at $1.3992, after
breaching $1.40.
Asian shares lost ground after gaining initially. The MSCI
index for Asian stocks outside Japan <.MIAPJ0000PUS> fell but
later rose slightly, and finished the week about more than 3
percent higher. The Nikkei average <> fell 0.4 percent.
(By Edward Krudy, Wanfeng Zhou, Matthew Robinson, Ellen
Freilich and Frank Tang in New York; Sitaraman Shankar, Kirsten
Donovan, Ikuko Kao and Jan Harvey in London
