Silver's slide drags on oil as Wall Street falters

NEW YORK Mon Apr 25, 2011 3:32pm EDT

1 of 2. A bank employee counts Australian banknotes at Kasikornbank in Bangkok in this January 21, 2010 file photo. The Australian dollar hit a fresh 29-year high and South Korea's benchmark share index touched another record intraday high on April 25, 2011, suggesting investors were still eager to embrace risk and higher-yielding assets.

Credit: Reuters/Sukree Sukplang/Files

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NEW YORK (Reuters) - A selloff in silver sparked by its failure to breach a 30-year record high contributed to an easing in oil prices on Monday, while Wall Street faltered on discouraging corporate earnings forecasts.

Trading in many markets was thin, with many investors uncertain whether the U.S. Federal Reserve will signal a change in its easy monetary policy after a two-day meeting of policymakers that concludes on Wednesday.

The euro rose against the dollar in a volatile but illiquid session. Traders fear the dollar could test its all-time low against a basket of currencies this week if the Fed keeps monetary policy loose.

The euro was up 0.19 percent at $1.4582.

Oil prices fell after U.S. crude hit its highest level since September 2008, with investors taking profits on the selloff in silver.

Oil and other commodities had risen earlier in the session on inflation fears and as markets eyed continued unrest in Libya, the Middle East and Nigeria.

"Silver's selloff spilled over to crude markets and traders took profits," said Dan Flynn, an analyst at PFGBest Research in Chicago.

Silver surged as much as 8 percent before pulling back when its failure to pierce the all-time high set in 1980 triggered a wave of technical selling amid record volume in the U.S. futures market.

Silver edged higher by early afternoon. Gold prices also retreated from early gains of nearly 1 percent that set a new record high.

Spot silver fell from a session high of $49.31 an ounce. U.S. silver futures had jumped to a intraday high of $49.82, short of the record $50.35 hit in January 1980.

Spot gold rose to a record high of $1,518.10 an ounce. It fell in tandem with silver to $1,510.60 an ounce.

U.S. stocks fell on signs that higher raw material costs were constraining some corporate outlooks, including Kimberly-Clark Corp.

The Dow Jones industrial average .DJI was down 34.66 points, or 0.28 percent, at 12,471.33. The Standard & Poor's 500 Index .SPX was down 2.90 points, or 0.22 percent, at 1,334.48. The Nasdaq Composite Index .IXIC was up just 2.73 points at 2,822.89.

A more tempered view of economic growth was taking hold across many markets, with higher U.S. gasoline prices seen as a damper for consumer spending.

"(There's a) fundamental bias that the data is indeed slowing and higher gas prices will take their toll on the consumer," said David Ader, senior government bond strategist at CRT Capital Group in Stamford, Connecticut.

U.S. government debt prices rose, helped by the view that even as the Fed approaches the end of its bond-buying program, it will hold onto its portfolio -- and thus its current level of monetary accommodation -- for some time.

The benchmark 10-year U.S. Treasury note was up 9/32 in price to yield 3.36 percent.

The dollar was down slightly against a basket of major currencies, with the U.S. Dollar Index .DXY down 0.01 percent at 73.989. Against the Japanese yen, the greenback was down 0.09 percent at 81.76.

If the Fed turns more hawkish, it poses a risk to the sizable amount of dollar shorts in the market.

Currency speculators pared bets against the dollar for a fourth straight week, according to data from the U.S. Commodity Futures Trading Commission released on Friday, but were still net short to the total of $24.36 billion.

(Reporting by Ryan Vlastelica, Nick Olivari, Robert Gibbons, Ellen Freilich and Frank Tang in New York; Writing by Herbert Lash; Editing by Jonathan Oatis)