* US inflation surprise props dollar, weighs on bonds
* Rising commodities cushion stocks fall
By Walter Brandimarte
NEW YORK, Dec 15 (Reuters) - Higher-than-expected November
U.S. inflation fueled demand for the dollar on Tuesday but
weighed on stocks and bonds as investors feared the Federal
Reserve may need to raise rates faster than anticipated.
Oil prices rose more than 1 percent after nine sessions of
losses, however, propping up energy shares and cushioning the
fall on Wall Street.
Fears that the Fed could end its two-day meeting on
Wednesday with a more hawkish view on interest rates surfaced
after data showed U.S. producer prices jumped a surprising 1.8
percent last month, much more than the 0.8 percent expected by
economists. For more, see [].
"Everyone's on inflation watch," said Burt White, chief
investment officer with LPL Financial in Boston.
"Indeed, inflation is starting to creep in, and that's
going to build expectations the Fed will come in sooner to slow
the economic recovery down faster than what this market
wants."
For a graphic on U.S. PPI, see
http://graphics.thomsonreuters.com/129/US_PRODP1209.gif
Stocks slipped globally, with the MSCI all-country world
stock index <.MIWD00000PUS> down 0.6 percent.
The Dow Jones industrial average <> lost 32.87 points,
or 0.31 percent, to 10,468.18, while the Standard & Poor's 500
Index <.SPX> was down 3.57 points, or 0.32 percent, at
1,110.54. The Nasdaq Composite Index <> was practically
stable at 2,212.09.
In Europe, however, the FTSEurofirst 300 <> index of
leading shares edged up 0.02 percent, holding the gains
recorded in the previous three sessions.
In recent weeks the relationship among equities and the
dollar, oil and gold has broken down, with those assets trading
more independently of one another.
For a graphic on those assets in 2009, see
http://graphics.thomsonreuters.com/129/US_DGSPB1209.gif
DOLLAR RALLIES
The U.S. dollar rallied to a 2-1/2-month high against the
euro on speculation of higher U.S. interest rates, but also
because the European single currency was hurt by fiscal
concerns in the euro zone following the downgrade of Greece
last week.
Adding to those concerns was news that Austrian monetary
authorities had put the country's fourth-largest bank,
Oesterreichische Volksbanken <OTVVp.VI>, on a watchlist.
[]
"Problems in Greece continue, and the news about the
Austrian bank hasn't helped either," said Ian Stannard,
currency strategist at BNP Paribas in London.
The euro <EUR=> weakened 0.99 percent to $1.451. Against
the Japanese yen, the dollar <JPY=> gained 1.43 percent at
89.86. The dollar was also stronger against a basket of major
trading-partner currencies, with the U.S. dollar index <.DXY>
rising 0.91 percent.
Inflation anxiety drove prices of U.S. Treasuries lower.
The 30-year bond <US30YT=RR>, the longest Treasury
maturity, last traded down 19/32, with the yield at a
four-month high of 4.5214 percent.
Benchmark 10-year Treasury notes <US10YT=RR> were down
13/32, with the yield at 3.6032 percent, its highest level
since August.
U.S. crude oil <CLc1> rose 1.5 percent to $70.55 per
barrel, ahead of weekly inventory reports expected to show
crude stockpiles fell last week.
Analysts also said oil was oversold after a nine-day streak
of losses, which helped keep prices up despite the strength of
the dollar.
(Additional reporting by Richard Leong, Steven C. Johnson and
Robert Gibbons; Editing by Padraic Cassidy)
