GLOBAL MARKETS-Dollar keeps falling, stocks firm before US GDP

Thu Apr 28, 2011 7:11am EDT

* Dollar hits three-year low vs basket of currencies

* European stocks inch up, Wall Street set to follow suit

* US crude hits 2-1/2 year high then slides, gold at record

* Speculation that U.S. Q1 GDP will undercut forecasts

(Adds U.S. stock futures, Treasuries, extra detail)

By Mike Peacock

LONDON, April 28 (Reuters) - The dollar slid to three-year lows on Thursday and stocks firmed worldwide ahead of crucial U.S. GDP data, with investors betting ultra-loose American policy would continue to drive money into riskier assets.

The Federal Reserve said it would complete its $600 billion bond-buying programme in June but Chairman Ben Bernanke signalled it was in no rush to tighten monetary policy with the jobs market still in a "very, very deep hole". [ID:nN26291565]

The Bank of Japan also maintained its rock-bottom policy stance, moves that are likely to see both the dollar and yen used as funding currencies to buy higher-yielding assets, such as commodities and equities. [ID:nL3E7FR5BU]

"With the prospect of ultra easy monetary policy continuing for the foreseeable future in the world's largest economy, traders are feeling more confident about holding the bullish view and risk appetite is expected to be high," said Jonathan Sudaria, a dealer at Capital Spreads in London.

European shares gained 0.2 percent .FTEU3, with Deutsche Bank (DBKGn.DE) up 4.5 percent after it beat forecasts with a quarterly net profit at a near-record level.

World stocks as measured by the MSCI All-Country World Index .MIWD00000PUS were up 0.7 percent by 1045 GMT, Japan's Nikkei average .N225 rose 1.6 percent and U.S. stock futures suggested Wall Street's rally has further to run. SPc1

"The markets will be reassured, though the punch bowl is being replaced by a smaller punch bowl," Justin Urquhart Stewart, director at Seven Investment Management, said of the Fed's statement. "But with today's GDP figures expected to be weaker, there will be a level of nervousness."

U.S. GDP data at 1230 GMT are expected to show growth slowed to a 2 percent annualised rate or less in the first quarter, from 3.1 in the last three months of 2010. [ID:nN27171497]

U.S. Treasury debt prices edged up in Europe supported by some expectations that U.S. growth will fall short of even that forecast, traders said. [US/]

Elsewhere in the debt markets, Greek government bond yields gyrated but were expected to move higher as investors become increasingly convinced a debt restructuring is looming. Two-year yields GR2YT=TWEB fluctuated between 24 and 27.1 percent, having shot up 2 percentage points on Wednesday. [GVD/EUR]

"There's no real turnaround in the sentiment ... If you're talking about restructuring you really don't want to be there," one trader said.

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Asset returns since first hints of QE2

r.reuters.com/pyc39r

BOJ balance sheet vs Fed link.reuters.com/saq88r

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DOLLAR UNDER THE COSH

With the Fed's stance jarring with central banks in Europe, Asia and Latin America already raising interest rates, the dollar index .DXY, which tracks its performance against a basket of major currencies, fell to as low as 72.871 -- a level not seen since July 2008.

It last stood at 73.13, down 0.5 percent on the day.

A Reuters poll showed most U.S. primary dealers expect the Fed to keep rates near zero through the end of 2011. [FED/R]

Dealers said several central banks in Asia were spotted buying the greenback to check sharp gains in their currencies.

The euro rose to a 17-month high of $1.4882 EUR= before easing a little, while the Australian dollar charted a new 29-year high near $1.0948 AUD=D4.

"It's obviously pretty much open water here until $1.50," Rob Ryan, FX strategist at BNP Paribas in Singapore, said of the euro, adding that the Aussie dollar could try for $1.10.

In commodities markets, dollar weakness helped propel U.S. crude CLc1 to a 2-1/2 year peak of $113.70 a barrel before it subsided to $112.41, down 0.3 percent on the day, as doubts about the strength of U.S. GDP took hold. [O/R]

Spot gold XAU= ascended to a lifetime high of $1,534.30 an ounce, breaking records for the second session running. It traded at $1,530.65 at 1045 GMT, up from $1,526.40 late in New York on Wednesday. [GOL/] (Additional reporting by Marius Zaharia in London, Ian Chua in Sydney, Masayuki Kitano in Singapore and Ayai Tomisawa in Tokyo; Editing by Toby Chopra)

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