Dollar’s rise knocks world stocks, oil off highs

By Walker Simon

NEW YORK (BestGrowthStock) – Stronger-than-expected U.S. economic data helped lift the long-battered dollar, knocking world stocks off two-year highs on Wednesday and spurring oil prices’ retreat from a six-month peak.

The latest batch of data pointed to a U.S. recovery, but markets remained focused on the Federal Reserve, expected within hours to announce it would seek to stimulate business activity via hefty debt purchases that may cut long-term interest rates.

“The market’s concern about the recovery will remain and the Fed later today may look at this as still a sign they need to ease further on monetary policy,” said Subodh Kumar, chief investment strategist of Subodh Kumar & Associates in Toronto.

The uncertainty about the scope of the Fed’s announcement, expected at 2:15 p.m. (1815 GMT), kept many investors on the sidelines and pushed U.S. stocks (Read more about the stock market today. ) modestly lower.

In the latest round of economic data, the Institute for Supply Management index showed the U.S. services sector grew more quickly than expected in October and the Commerce Department reported that September factory orders posted their largest gain in eight months. A report from payrolls processor ADP said U.S. private-sector employers added more jobs than expected in October.

The helped the dollar regain its poise and strengthen against a basket of major trading-partner currencies, with the U.S. Dollar Index (.DXY: ) up 0.14 percent at 76.832.

Against the Japanese yen, the dollar shot up almost 1 percent to 81.40 yen from 80.62 on Tuesday. The euro fell (Read more about the trembling euro. ) 0.19 percent to $1.4011 from Tuesday’s close of $1.4037.

Since last Wednesday, the dollar index (Read more about the global trade. ) has fallen about 0.5 percent as the Fed’s expected push to buy assets and lower bond interest rates drove investors into other currencies whose debt offers higher returns.

BONDS RALLY BEFORE THE FED

U.S. Treasury debt prices rose for a second straight day as investors prepared for the Federal Reserve’s announcement, which markets have priced in as $500 billion in debt purchases over five months, with an open-ended commitment to buy more — if necessary.

The benchmark 10-year U.S. Treasury note gained 14/32, with the yield falling to 2.541 percent from 2.954 percent late on Tuesday.

The 30-year U.S. Treasury bond climbed 29/32, with the yield at 3.8801 percent, down from Tuesday’s 3.94 percent.

The Dow Jones industrial average (.DJI: ) declined 23.31 points, or 0.21 percent, to 11,165.41. The Standard & Poor’s 500 Index (.SPX: ) fell 4.03 points, or 0.34 percent, to 1,189.54. The Nasdaq Composite Index (.IXIC: ) shed 12.67 points, or 0.50 percent, to 2,520.82.

Wall Street’s dip weighed on top European shares (.FTEU3: ), which fell 0.49 percent to 1,087 points.

Before the U.S. stock market opened trading, the MSCI world equity index (.MIWD00000PUS: ) rose as high as 320.42, bringing gains this year to 7.5 percent and posting the strongest level since mid-2008. It was helped by the MSCI emerging equities index (.MSCIEF: ), which hit its highest point since June 2008.

At midday in New York, the MSCI world index was down 0.23 percent at 318.57 points.

The stronger dollar made oil, metals and other commodities more expensive for non-U.S. investors, diluting their investment appeal.

U.S. sweet light crude futures touched a six=month high of $85.36 a barrel, partly on the belief that the Fed’s expected moves will spur the U.S. economy and increase energy demand.

At 12:49 p.m.(1649 GMT), oil was up 63 cents, or 0.75 percent, at $84.53 per barrel.

Spot gold tumbled $27.35, or 2.02 percent, to $1,329.65 an ounce.

(Reporting and writing by Walker Simon; Additional reporting by Caroline Valetkevitch, Gertrude Chavez-Dreyfuss and Chris Reese; Editing by Jan Paschal)

Dollar’s rise knocks world stocks, oil off highs