Dollar rebounds, stocks edge up ahead of G20

By Manuela Badawy

NEW YORK (BestGrowthStock) – The dollar rebounded from earlier losses in volatile trade on Thursday amid questions about the extent of the Federal Reserve’s economic stimulus measures, while world stocks edged higher in tandem with the U.S. currency’s turnabout.

U.S. data on jobless claims and regional business activity reinforced expectations that the Federal Reserve will provide another round of stimulus to boost the economy.

New U.S. claims for unemployment benefits fell more than expected last week but not enough to suggest much improvement in the labor market, while the Philadelphia Federal Reserve Bank’s October business conditions index rose less than expected.

The data “means that the Fed still has some work to do. They need to take some more precautions against the downside risk to the economy,” said Mark Vitner, senior economist at Wells Fargo Securities in Charlotte, North Carolina.

The dollar’s volatility came just ahead of Friday and Saturday meetings in South Korea of the Group of 20 finance and central bank chiefs, who will try to hammer out an agreement to manage currency, trade and macroeconomic imbalances.

China’s latest data showed its economy was far from overheating, suggesting Beijing’s rate hike this week may be enough for now to placate trading partners demanding a stronger yuan to reduce trade imbalances.

U.S. earnings remained in the spotlight, with Caterpillar Inc (CAT.N: ) reporting strong quarterly results and raising its full-year revenue forecast. Blue chips McDonald’s Corp (MCD.N: ) and Travelers Cos Inc (TRV.N: ) helped lift the Dow after reporting better-than-expected results.

The Dow Jones industrial average (.DJI: ) gained 38.60 points, or 0.35 percent, to close at 11,146.57. The Standard & Poor’s 500 Index (.SPX: ) added 2.09 points, or 0.18 percent, to 1,180.26. The Nasdaq Composite Index (.IXIC: ) rose 2.28 points, or 0.09 percent, to 2,459.67.

Stocks generally advanced, renewing a rally that has been under way since September.

The MSCI all-country world index (.MIWD00000PUS: ) rose 0.28 percent on the day with its emerging market component (.MSCIEF: ) leading the way, up 0.45 percent. MSCI’s emerging market index has gained 12 percent this year.

European stocks rallied, ending at their highest closing level in six months, propelled by a batch of upbeat quarterly results from bellwethers such as Nokia (NOK1V.HE: ). The FTSEurofirst 300 index(.FTEU3: ) of top European shares rose 0.6 percent to end at 1,093.24, the index’s highest close since late April.

The December futures contract for the Nikkei 225 stock index trading in Chicago fell 30 points to 9,385.

DOLLAR VOLATILITY

Currency volatility rippled through markets after comments from U.S. Treasury Secretary Timothy Geithner late on Wednesday in which he said major currencies were in balance. The dollar jumped initially but the rally faded as investors focused on the impact of a renewal of quantitative easing by the Fed.

But the size, shape and timing of the Fed’s move have left investors guessing, and nearly two months of speculation has given them plenty of time to sell the dollar, pushing it to extreme levels against some major currencies.

“Since it is clear that the direction is toward an expansion of quantitative easing (in the United States), it is hard to expect a sustained rebound in the dollar,” said Taisuke Tanaka, FX strategist at Nomura Securities in Tokyo.

By midday, though, the dollar had managed a modest rebound against the euro and a basket of major currencies.

A G20 source, with direct knowledge of meeting deliberations, said G20 officials are unlikely to reach an accord rejecting currency devaluations and capping current account balances. The source made the comment after U.S. proposals ran into stiff opposition from several countries, including India and China.

The euro was down 0.33 percent at $1.3918 from a previous session close of $1.3964. The euro had earlier climbed to a high around $1.4050, but failed to sustain gains above key resistance at $1.40 for a second day this week. It also came under pressure after U.S. stocks (Read more about the stock market today. ) cut gains.

Against the Japanese yen, the dollar was up 0.25 percent at 81.32 from a previous session close of 81.12.

The dollar was up against a basket of major currencies, with the U.S. Dollar Index (.DXY: ) up 0.38 percent at 77.461 from a previous session close of 77.171. The U.S. currency has lost more than 10 percent against major currencies over the past four months.

While traders were far from convinced that G20 ministers would solve once and for all their exchange-rate disagreements at a weekend meeting, some said there was reluctance to take extreme positions one way or the other.

“There’s so much uncertainty, and I really think we’ll see a lot of position jockeying ahead of the weekend,” said Greg Salvaggio, vice president of trading at Tempus Consulting. “I wouldn’t be surprised to see some dollar strength ahead.”

U.S. government debt prices slipped on light volume as traders await the Fed’s decision.

The benchmark 10-year U.S. Treasury note was down 18/32, with the yield at 2.549 percent. The 2-year U.S. Treasury note was unchanged with the yield at 0.360 percent. The 30-year U.S. Treasury bond was down 39/32, with the yield at 3.962 percent.

In the energy markets, crude oil fell $1.98, or 2.40 percent, to settle at $80.56 per barrel following another build in U.S. crude oil stocks last week. Meanwhile, in commodities trading, spot gold prices fell $20.40, or 1.52 percent, to $1,324.90 an ounce.

(Additional reporting by Richard Leong, Lucia Mutikani, Steven C. Johnson and Angela Moon in New York; Editing by Kenneth Barry and Jan Paschal)

Dollar rebounds, stocks edge up ahead of G20