U.S. stocks, dollar fall after Bernanke comments

Four thousand U.S. dollars are counted out by a banker counting currency at a bank in Westminster, Colorado November 3, 2009.

NEW YORK (Reuters) - U.S. stocks fell for a fifth day and the dollar weakened on Tuesday after Federal Reserve Chairman Ben Bernanke acknowledged a slowdown in the economy, but offered no suggestion of further monetary stimulus to support growth.

The weaker dollar helped boost crude oil prices, though gains were limited by expectations that OPEC will raise its production targets this week and by worries that an economic slowdown will erode demand.

"U.S. economic growth so far this year looks to have been somewhat slower than expected," Bernanke told a banking conference. He said the recovery was still weak enough to warrant keeping in place the Fed's strong monetary support, saying the economy was still growing well below its full potential.

The Dow Jones industrial average .DJI dropped 19.15 points, or 0.16 percent, to end at 12,070.81. The Standard & Poor's 500 Index .SPX fell 1.23 points, or 0.10 percent, to finish at 1,284.94. The Nasdaq Composite Index .IXIC shed 1.00 point, or 0.04 percent, to close at 2,701.56.

"The market is taking the comments as a sign the economy is not really in the recovery mode, that Bernanke is going to hold off on rates for much longer than the market had anticipated before, well into 2012," said Jonathan Xiong, senior portfolio manager of global asset allocation at Mellon Capital Management in San Francisco.

"The equity market is just taking that as a sign that it's not really good news, that he sees something that maybe the valuations in the equity market are not picking up."

Earlier, Citigroup's chief U.S. equity strategist said U.S. stock indexes could fall as much as 10 percent from their May highs, but barring unexpected shocks, should not return to a bear market.

A 10 percent correction from the May 2 peak of 1,370 would put the benchmark S&P 500 index at 1,233.

World stocks as measured by the MSCI world equity index .MIWD00000PUS rose 0.2 percent, snapping a four-session decline as investors bought beaten-down shares. The Thomson Reuters global stock index .TRXFLDGLPU gained 0.3 percent. Emerging market stocks .MSCIEF also climbed 0.3 percent.

The FTSEurofirst 300 .FTEU3 index of top European shares surrendered early gains to close down a fraction at 1,104.05, the lowest close since mid-March. It has lost 3.3 percent in the five sessions so far in June.

DOLLAR WEAKENS, CRUDE GAINS

The dollar fell below 80 yen for a second straight day following Bernanke's comments. The pair last traded at 80.05 yen, down 0.1 percent on the day.

The U.S. currency earlier hit a record low against the Swiss franc and a one-month trough against the euro after a Chinese official said China must be alert to the risk of holding too many dollars at a time when Washington is pursuing loose monetary and fiscal policies.

The dollar fell as low as 0.8327 Swiss francs. It also slid 0.6 percent against a basket of major currencies, .DXY to 73.506, its lowest in a month. The euro hit a one-month high of $1.4696.

Expectations the Fed will keep benchmark interest rates near zero for longer, even as other major central banks are tightening, have weighed on the dollar in recent months.

The European Central Bank is expected on Thursday to signal a second rise in rates this year, which could offset worries about a potential Greek debt restructuring.

Oil prices rose as the weaker dollar and Middle East turmoil lifted prices, but news that Saudi Arabia planned to raise output in June regardless of the result of OPEC's Wednesday meeting helped limit Brent's gains and put pressure on U.S. crude futures.

Brent crude for July delivery rose $2.30 to settle at $116.78 a barrel. U.S. July crude edged up 8 cents to settle at $99.09 a barrel.

Spot gold earlier rose as high as $1,550 an ounce, before pulling back to trade little changed at $1,543.99.

Long-dated Treasuries joined shorter-term Treasuries in the plus column after Bernanke's comments as prices firmed narrowly.

Benchmark 10-year Treasury notes, which were slightly lower before Bernanke spoke, rose 1/32 afterward.

(Additional reporting by Steven C. Johnson, Edward Krudy, Ellen Freilich, Frank Tang and Robert Gibbons; Editing by Kenneth Barry)