World stocks and oil slip, US dollar gains

A man is reflected in a stock quotation board outside a brokerage in Tokyo September 25, 2009.

NEW YORK (Reuters) - Global stocks and crude oil ended lower on Monday, on fresh concerns about economic recovery, helping to revive a safety bid for the U.S. dollar

The U.S. dollar bounced from 14-month lows seen last week on speculation that a credit for first-time U.S. homebuyers credit will be phased out, and a rising dollar meant investors scaled back commodity holdings after a rally for raw goods.

Gold prices fell to a two-week low as the dollar rebounded, with weak physical demand for the precious metal also weighing.

The dollar turned around after earlier struggling in the wake of a report saying China should increase its holdings of euros and yen in its foreign reserves.

Diversification of China's $2.27 trillion stockpile of foreign exchange reserves is a long-standing policy, a senior central banker in Beijing said.

The euro fell to session lows just below $1.49 after earlier hitting a 14-month high at $1.5064.

Crude oil slid more than 2.0 percent, below $79 a barrel, after trading as high as $81.58.

"You do have an overall reversal in risk appetite," said Samarjit Shankar, managing director of global FX strategy at BNY Mellon in Boston.

"It's primarily a lot of profit-taking on long risk positions and some hesitation on the part of market participants ahead of the (third-quarter U.S. gross domestic product) number that's going to come out this week," he added.

Investors felt uncomfortable pushing the euro higher given the huge amount of bearish trades on the dollar, suggesting a near-term recovery in the U.S. currency is on the horizon.

Earlier in the day data unexpectedly showed German consumer sentiment declined for the first time in just over a year going into November.

U.S. financial shares tumbled after investment researchers ISI Group said in a research note that there could be an agreement to phase out the home buyer tax credit over 13 months, rather than expand it, as some had hoped.

Several traders attributed the about-face in U.S. stocks, which had been about 1.0 percent higher, to ISI's research note.

"Anything that stops the printing press is going to help the dollar," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey. But "any time you pull away a bailout, the market doesn't like it," he said.

The Dow Jones industrial average .DJI closed down 104.22 points, or 1.05 percent, at 9,867.96. The Standard & Poor's 500 Index .SPX was down 12.65 points, or 1.17 percent, at 1,066.95. The Nasdaq Composite Index .IXIC was down 12.62 points, or 0.59 percent, at 2,141.85.

MSCI's all-country world index .MIWD00000PUS fell 1.2 percent.

The energy and materials sectors reversed course as U.S. crude futures fell below $80 a barrel, while the ICE Futures dollar index .DXY gained 0.7 percent.

U.S. Treasury bond prices fell sharply as investors grappled with another record round of debt auctions and fretted over the possible timing of a Federal Reserve policy reversal.

Solid results for a sale of $7 billion in five-year, inflation-protected notes did not assuage these concerns, while fears of a more vocal exit strategy from the Federal Reserve added to the selling pressure.

Short-term interest rates futures implied traders are pricing in the chances of the U.S. central bank raising rates in the second quarter of 2010, rather than the third quarter.

The benchmark 10-year U.S. Treasury note was down 20/32 in price to yield 3.56 percent.

The dollar was up against a basket of major currencies, with the U.S. Dollar Index .DXY up 0.70 percent at 75.995.

The euro was down 0.88 percent at $1.4868. Against the yen, the dollar was up 0.16 percent at 92.19.

U.S. crude for December delivery fell 2.3 percent, or $1.82 a barrel, to settle at $78.68. Brent crude fell $1.66 to settle at $77.26 a barrel.

U.S. December gold futures settled down $13.60 at $1,042.80 an ounce in New York.

The MSCI index of Asia-Pacific shares excluding Japan .MIAPJ0000PUS fell 0.2 percent, holding below a near-15-month peak set last week, while Japan's Nikkei average .N225 ended up 0.8 percent at 10,362.62.

(Reporting by Angela Moon, Gertrude Chavez-Dreyfuss, Joshua Schneyer and Richard Leong in New York; George Matlock in London and Blaise Robinson in Paris; Writing by Herbert Lash; Editing by James Dalgleish)