Dollar plunges, stocks up on Singapore move

NEW YORK Thu Oct 14, 2010 4:51pm EDT

A man walks past a display showing stock market prices inside a bank in Taipei August 31, 2010. REUTERS/Nicky Loh

A man walks past a display showing stock market prices inside a bank in Taipei August 31, 2010.

Credit: Reuters/Nicky Loh

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NEW YORK (Reuters) - The U.S. dollar index hit its lowest this year and world stocks rose modestly on Thursday after Singapore let its currency strengthen, spurring gains in most major currencies against the struggling greenback.

The Australian dollar, which boasts the highest yield among major currencies, soared to its strongest since the currency was floated in 1983 at $0.9994 and was poised near parity.

Investors continued to dump the dollar against the backdrop of Singapore's move and on rising expectations the Federal Reserve will engage in another round of "quantitative easing" -- effectively printing money to buy assets.

The Singapore dollar hit a record high while the Chinese yuan hit its highest closing level against the U.S. dollar since July 2005.

Singapore's decision to widen and raise the trading band for the Singapore dollar -- an indication Asian economies are now strong enough to tolerate monetary tightening -- follow the recent move by emerging market power Brazil to curb currency appreciation. Similarly, Thailand is also considering a tax on speculative capital inflows.

"Effectively the Singapore move is a tightening of policy and it clearly shows Asian economies are at the opposite end of the spectrum compared to the spare capacity in the U.S. economy," said Chris Turner, head of FX strategy at ING.

Speculation of aggressive monetary action from the Federal Reserve intensified further after a government report showing new U.S. claims for first-time jobless benefits rose last week.

Gold, one of the market's favorite safe haven securities, hit a record high of $1,387.10 an ounce in early New York trade and were set for their fifth consecutive weekly rise.

DOLLAR IN THE DUMPS

The dollar was down against a basket of major trading-partner currencies, with the U.S. Dollar Index .DXY down 0.68 percent at 76.549 from a previous close of 77.071.

The euro, which earlier surged to a more than eight-month high of $1.4123 on trading platform EBS, traded up 0.84 percent at $1.4079 at New York's close. The currency was up from a previous session close of $1.3962.

Against the Japanese yen, the dollar was down 0.37 percent at 81.47 from a previous session close of 81.77.

The currency markets weren't alone in the spotlight. Spot gold prices hit a record of $1,387.10 an ounce early Thursday, but traded at $1380.20, rising $9.10, or 0.66 percent.

Ashraf Laidi, chief market analyst at CMC Markets in London, said that once the United States' second round of quantitative easing "becomes the new normal, selling pressure on the U.S. dollar could well ease as traders begin anticipating the days of similar moves by the Bank of England and the ECB."

Global stock indexes gained, with the MSCI world equity index .MIWD00000PUS up over 0.35 percent to 317.50, but the Thomson Reuters global stock index .TRXFLDGLPU dipped 0.96 percent, after hitting two-year highs.

In the United States, benchmark indexes were down. The Dow Jones industrial average .DJI was down 1.51 points, or 0.01 percent, at 11,094.57. The Standard & Poor's 500 Index .SPX was down 4.29 points, or 0.36 percent, at 1,173.81. The Nasdaq Composite Index .IXIC was down 5.85 points, or 0.24 percent, at 2,435.38.

European shares moved in sympathy with U.S. markets, dragged by worries over the banking sector's health. The pan-European FTSEurofirst 300 .FTEU3 index of top shares provisionally closed 0.17 percent lower at 1,084.67 points.

U.S. Treasury debt prices were lower.

The benchmark 10-year U.S. Treasury note was down 25/32, with the yield at 2.51 percent. The 2-year U.S. Treasury note was down 1/32, with the yield at 0.38 percent. The 30-year U.S. Treasury bond was down 56/32, with the yield at 3.92 percent.

In energy and commodities prices, U.S. light sweet crude oil fell 27 cents, or 0.33 percent, to $82.74 per barrel and the Reuters/Jefferies CRB Index .CRB was up 0.19 points, or 0.06 percent, at 299.93.

(Additional reporting by Steven C. Johnson in New York; Editing by Andrew Hay and Chizu Nomiyama)

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