Wednesday, October 27, 2010

Dollar higher on Fed doubts, stocks flat

NEW YORK: The dollar rose broadly on Tuesday, Oct 26 as investors speculated the Federal Reserve would proceed more cautiously in announcing any asset-buying next week, scaling back bets against the greenback.

Stocks, meanwhile, ended flat to lower on earnings and ahead of next week's U.S. elections and the Fed meeting to decide on more economic stimulus.

U.S. government debt prices fell ahead of more new debt supply. But traders said a big retreat was unlikely because of the Fed meeting - at which the U.S. central bank is expected to say it will buy bonds via quantitative easing to revive growth and avert deflation.

Most currency traders expect the Fed to opt for more quantitative easing, but some easing is priced into an already weak dollar. The questions of how much easing the Fed's Open Market Committee does and how fast have kept investors edgy about building more bearish bets on the dollar.

Japanese stocks were poised to open higher, with the December Nikkei 225 stock futures contract in Chicago up 20 points at 9,455.

QE essentially involves printing more money, so a flood of dollars on the market would debase the currency's value.

"Everything is dependent on the FOMC and people don't want to take aggressive positions ahead of this very big decision," said Stephan Maier, currency strategist at Unicredit in Milan.

The Fed meets next on Nov. 2-3.

But some investors have begun to reconsider the likelihood of a big burst of QE after comments from Fed officials on Monday.

"I think it's still possible that QE II is not a done deal for November, even though the market has been trading as if it is," said Brian Dolan, chief currency strategist at in Bedminster, New Jersey. He said the Fed might put off action until the first quarter.

The dollar was up against major currencies, with the U.S. Dollar Index climbing 0.74 percent at 77.671.

The euro was down 0.78 percent at $1.3854 from a previous session close of $1.3963. Against the Japanese yen, the dollar was up 0.83 percent at 81.45 from a previous session close of 80.780.

The dollar edged away from 15-year lows after Japan's finance minister Yoshihiko Noda warned the government would "act decisively" in currency markets if needed.


U.S. stocks ended little changed before the potential market tumult of next week's U.S. elections and likely announcement of more stimulus from the Federal Reserve.

Next week's high-profile events could signal shifts in both monetary policy and legislative direction, raising fears that trumped Tuesday's earnings news and economic reports.

"You have a double whammy next week: Election Day and the Fed announcement," said Doug Roberts, chief investment strategist at Channel Capital in Shrewsbury, New Jersey.

The Dow Jones industrial average gained 5.41 points, or 0.05 percent, to 11,169.46. The Standard & Poor's 500 Index gained 0.02 point to 1,185.64. The Nasdaq Composite Index gained 6.44 points, or 0.26 percent, to 2,497.29.

Weak revenue forecasts from drugmaker Bristol-Myers Squibb Co and chip manufacturer Texas Instruments Inc pulled drug and chipmaker stocks lower.

Bristol-Myers fell 1.1 percent to $26.86 and Texas Instruments shed 0.3 percent to 28.88. The NYSE Arca Pharmaceutical index lost 0.6 percent and the PHLX Semiconductor index dipped 0.4 percent.

MSCI's all-country world stock index was down 0.4 percent with its emerging market sub-index rising 0.12 percent.

The pan-European FTSEurofirst 300 index of top shares closed down 0.2 percent at 1,090.56 points, after rising 0.3 percent on Monday to end near a six-month high.

European equities fell on uncertainty about QE and comments from ArcelorMittal that the basic resources sector faced extended weakness.

U.S. government debt fell on data showing higher-than-expected consumer confidence and as traders cut prices ahead of supply .

The benchmark 10-year U.S. Treasury note was down 21/32, with the yield at 2.643 percent. The 2-year U.S. Treasury note was down 2/32, with the yield at 0.3954 percent. The 30-year U.S. Treasury bond was down 46/32, with the yield at 3.9992 percent.

In energy and commodities, crude oil fell 0.06 percent to $82.47 per barrel while spot gold rose 0.03 percent, to $1339.80 an ounce. - Reuters

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