GLOBAL MARKETS-US dollar soars, stocks set new highs on Fed QE exit talk

Fri May 17, 2013 4:26pm EDT

* Fed's Williams says stimulus reduction could start this
summer
    * U.S. consumer sentiment rises to nearly six-year high
    * U.S. dollar index hits nearly three-year high
    * Dow, S&P 500 surge to record closing highs


    By Herbert Lash
    NEW YORK, May 17 (Reuters) - The U.S. dollar soared against
major currencies on Friday on growing speculation that the
Federal Reserve could soon begin to rein in its bond-buying
program and after data showed U.S. consumer sentiment hit an
almost six-year high in early May.
    The Dow Jones Industrial Average and benchmark S&P 500 stock
index surged to new closing highs in a rally that has pushed
both indices this year up 17 percent. 
    Major European equity indexes climbed to highs last seen
five years ago or more, helped by a rally in automakers' shares,
which rose on signs of a revival in domestic sales.
    Stocks on both sides of the Atlantic were boosted after a
survey of U.S. consumer sentiment in early May rose more than
economists had expected, with more Americans giving favorable
views about their financial and economic prospects, particularly
among upper-income households. 
    In a separate report by an industry group, a gauge of future
economic activity also suggested the expected U.S. slowdown will
be temporary, with the index rising in April to a near five-year
high.
    The two reports were encouraging after a raft of data on
Thursday had suggested U.S. economic growth is cooling.
    The dollar's strength was largely attributed to the euro,
which fell to a six-week low on talk the European Central Bank
could introduce negative deposit rates, a move that effectively
would make banks pay to park their cash overnight with the ECB. 
   The ECB had no immediate comment. 
    The U.S. dollar index, which measures its value
against a basket of six major currencies, rose to 84.371, its
highest in nearly three years. Around midday in New York, the
dollar index was up 0.81 percent at 84.266.
    The euro fell 0.42 percent to $1.2827, while the
dollar hit a 4-1/2-year high versus the Japanese yen, up
0.93 percent at 103.19 yen.
    Few fear that the dollar rally will lose steam anytime soon.
    "It is a dollar story this year as the U.S. labor and
housing markets appear to be recovering," said Peter Kinsella,
currency strategist at Commerzbank in London.
    A measure of global equity activity, MSCI's all-country
world stock index, rose 0.22 percent in a rocky
session as it was tugged downward by emerging markets.
    The Dow Jones Industrial Average closed up 121.18
points, or 0.80 percent, at 15,354.40. The Standard & Poor's 500
Index rose 15.65 points, or 0.95 percent, at 1,666.12.
The Nasdaq Composite Index gained 33.72 points, or 0.97
percent, at 3,498.97.
    For the week, the Dow rose 1.6 percent, the S&P gained 2.0
percent and the Nasdaq added 1.8 percent.
    Among other indexes, the Russell 2000 index of small-
and mid-cap stocks also surged to a record close. The index
closed up 10.94 points, or 1.11 percent, at 996.28. 
    The FTSEurofirst-300 index of European shares 
bounced off session lows to rise 0.22 percent to close at
1,248.18, a five-year closing high. The index was up 1.3 percent
for the week, marking a fourth straight week of gains.
    In London, the FTSE-100 index gained 0.53 percent to
6,723.06, a level last seen in October 2007.
    Gold prices fell for a seventh straight session, the longest
losing streak in four years, driven by speculation that the Fed
may soon ease its asset-purchase program.
    U.S. gold futures for June delivery settled down 1.6
percent at $1,364.70 an ounce. For the week, gold fell more than
5 percent.
    Spot gold prices lost $29.43 to $1,356.20 an ounce.
    U.S. stocks and gold prices fell while the dollar rose on
Thursday, following comments from John Williams, president of
the Federal Reserve Bank of San Francisco, that the Fed could
begin easing up on stimulus this summer.
   
    Prices for U.S. Treasuries added to losses after the Thomson
Reuters/University of Michigan's preliminary reading on the
overall index on consumer sentiment rose to 83.7 in early May
from 76.4 last month, topping economists' expectations for 78.
    The May reading was the highest level since July 2007. 
    The benchmark 10-year U.S. Treasury note fell
21/32 in price to yield 1.9524 percent. 
    In Europe, German Bunds hit one-week highs, with traders
citing talk that the ECB was checking with banks on whether they
were ready for a potential cut in its deposit rate to below
zero.
    German Bund futures rose as much as 43 ticks on the
day to 145.74, before paring gains to trade 17 ticks lower.
    Oil climbed for a third straight session, supported by a
raft of strong economic data, though the strong dollar limited
gains.
    Brent crude rose 86 cents to settle at $104.64 a
barrel. U.S. crude futures settled 86 cents higher at
$96.02.
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