Weak U.S. data hurts oil, dollar

A man looks at an electronic board displaying various market indices from around the world outside a brokerage in Tokyo May 16, 2011.

NEW YORK (Reuters) - Discouraging U.S. housing and factory data weighed on oil prices and the U.S. dollar on Thursday, while a lackluster day on Wall Street was overshadowed by the doubling of professional networking company LinkedIn's share price in its market debut.

A drop in weekly claims for unemployment aid suggested the U.S. labor market was on track for recovery. But regional factory activity grew much more slowly than expected in May and home resales fell in April.

The bleak data made investors question the strength of the U.S. economic recovery and suggested the Federal Reserve will likely keep monetary policy ultra-loose for a while longer, keeping interest rate differentials unfavorable for the U.S. currency.

"The markets right now are very concerned, they are pricing in risk that somehow the second-half rebound is under threat," said Anthony Chan, chief economist at J.P. Morgan Private Wealth Management in New York.

The euro rose 0.4 percent to $1.4306 while the U.S. Dollar Index .DXY, a gauge of the greenback against a basket of currencies, fell 0.5 percent.

"The Fed cannot raise rates in a slowing economic environment," said Douglas Borthwick, managing director at Faros Trading in Stamford, Connecticut.

"Given the U.S. Treasury states currencies should reflect economic fundamentals, we see a weaker (dollar) going forward."

Oil prices fell as the U.S. data stoked fresh worries about the health of the world's largest economy and after the International Energy Agency urged oil producers to increase supply to cut fuel costs and protect the fragile global economic recovery.

The IEA raised the possibility of releasing emergency stockpiles to cool prices if producers did not increase supply.

U.S. crude oil dropped 1.7 percent to $98.44 a barrel, unable to extend Wednesday's 3.3 percent advance, while Brent edged 0.8 percent lower to $111.38.

Copper fell 1.4 percent following Wednesday's gain of more than 3 percent, the largest in two months.

Commodity prices have fallen sharply in recent weeks after months of steep gains. U.S. crude is down more than 13 percent for the month.

Investors in higher-risk assets such as commodities and equities face next month's end of a Federal Reserve program to buy U.S. Treasury debt, known as QE2, which has generated a flow of cash that has contributed to rising prices.

Stocks, bonds, gold and the euro are expected to fall in the three months after the end of QE2, a Reuters poll of 64 analysts and fund managers found.

On Wall Street, shares of LinkedIn Corp (LNKD.N), whose site is popular with professionals and job hunters, surged as much as 171 percent in their first day of trading, reminiscent of investors' love affair with Internet stocks in the late 1990s.

"It seems to bring back memories of the tech bubble," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. "Based on what I know it seems like investors are a little overly enthusiastic."

LinkedIn shares closed up 109.4 percent at $94.25 after hitting a session high of $121.97.

U.S. stocks closed higher but ran into a technical resistance level that is likely to limit a further rise in the near-term. The mixed economic data kept confidence in the economic recovery on shaky ground.

The Dow Jones industrial average .DJI gained 45.14 points, or 0.36 percent, to 12,605.32. The Standard & Poor's 500 Index .SPX rose 2.92 points, or 0.22 percent, to 1,343.60. The Nasdaq Composite Index .IXIC added 8.31 points, or 0.30 percent, to 2,823.31.

The MSCI world equity index .MIWD00000PUS rose 0.39 percent and the Thomson Reuters global stock index .TRXFLDGLPU gained 0.3 percent.

U.S. dollar-denominated Nikkei futures dropped 0.9 percent.

Benchmark 10-year notes were up 3/32 in price to yield 3.17 percent, down from 3.18 late Wednesday.

(Reporting by Rodrigo Campos; additional reporting by Edward Krudy, Gertrude Chavez-Dreyfuss, Julie Haviv, Chuck Mikolajczak and Gene Ramos; Editing by Dan Grebler)