* US dollar trade-weighted index hits lowest since January
* 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 with New York close, adds comment, Tokyo futures)
By Daniel Bases
NEW YORK, Sept 29 (Reuters) - Rising expectations that
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. stock indexes gyrated in and out of positive territory
on light trading volume, while European shares ended lower.
Oil rallied, ending at a seven-week high above $77 a barrel
after a report showed low inventories for crude and related
products. []
Tokyo share prices appear poised to open lower on Thursday
after making marginal gains on Wednesday. The December futures
contract for the Nikkei 225 stock index <0#NK:> trading in
Chicago fell 5 points to 9,555.
There is mounting speculation the U.S. Federal Reserve may
engage in quantitative easing -- a process of buying up bonds
and other assets to pour 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=> set another record high of $1,313.20 an
ounce before slipping to $1,309.10, up $1.70 in late New York
trade. Silver <XAG=> set its best level in 30 years at $22.00
an ounce before dipping to $21.90, up 21 cents on the day.
STOCKS SLIP
On Wall Street, the Dow Jones industrial average <>
fell 22.86 points, or 0.21 percent, to end at 10,835.28. The
Nasdaq Composite Index <> dropped 3.03 points, or 0.13
percent, to 2,376.56.
The Standard & Poor's 500 Index <.SPX> lost 2.97 points, or
0.26 percent, to end at 1,144.73. However, in September, a
traditionally weak month for stocks, the S&P 500 is up 9.1
percent in September.
"The market is at a stage where it's trying to find out
the right level. It seems like investors don't have a clear
plan or strategy right now because September turned out so
well," said Jack Ablin, chief investment officer at Harris
Private Bank in Chicago.
Hewlett-Packard Co <HPQ.N> rose 2.2 percent to $42.53 after
the computer and printer maker forecast 2011 profits above
estimates. For details, see []
The FTSEurofirst 300 <> index of top European shares
fell 0.55 percent to close at 1,064.88. Retail shares fell
after a disappointing profit margin from Swedish fast-fashion
group Hennes & Mauritz <HMb.ST>, the world's third-largest
clothing retailer, proved a drag on market sentiment.
European banks <.SX7P> were down 1.5 percent.
Japan's Nikkei <> 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
DOLLAR AND DEBT RETREAT
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."
Chinese and European economic and business sentiment
advanced this month, adding to pressure on the greenback.
[] []
The greenback fell versus major currencies, with the U.S.
Dollar Index <.DXY> down 0.30 percent at 78.776, not far above
an eight-month low of 78.616 set earlier in the session..
The euro <EUR=> rose 0.32 percent to $1.3623. The dollar
fell 0.27 percent to 83.65 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 the government debt market, the benchmark 10-year U.S.
Treasury note<US10YT=RR> fell 11/32 in price, yielding 2.50
percent, up from 2.46 percent late on Tuesday.
(Reporting and writing by Daniel Bases; Additional reporting
by Gertrude Chavez-Dreyfuss, Edward Krudy, Mike Dolan, Neal
Armstrong, Joanne Frearson, Vikram Subhedar, Masayuki Kitano
and Charlotte Cooper; Editing by Jan Paschal)
