GLOBAL MARKETS-Shares, dollar retreat on central bank worries

Wed Jun 12, 2013 1:27pm EDT

* World share markets retreat as monetary policy concerns weigh

* Government bond prices lower

* Oil gains despite report showing rising inventories

By Herbert Lash

NEW YORK, June 12 (Reuters) - The dollar and world equity markets retreated on Wednesday as persistent concerns about central banks' support for their economies - and financial markets - weighed on the near-term prospect for stocks and other "risk" assets.

Stocks, bonds, commodities and the dollar all suffered a sharp selloff on Tuesday when the Bank of Japan's decision to leave its policies unchanged spooked investors already worried the Federal Reserve will soon curb its bond-buying program.

The dollar index of the greenback versus six other major currencies dropped to its lowest in nearly four months, weighed by uncertainty over when the Fed will pare back its ultra-loose monetary policy.

The index fell as low as 80.748, its lowest since Feb. 20, and was last down 0.2 percent at 80.959.

The euro rebounded to gain 0.14 percent to 1.3333 against the greenback.

"There is a lot of consolidation going on headed into next week's Fed meeting,' said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington, D.C. "There is broad volatility and people are afraid the Fed will push off its bond-buying tapering until later in the year."

Traders said they saw little room for bigger near-term gains. Early gains in equities on Wednesday were more a "recovery rally" rather than anything more fundamental, said Peter Rice, director of strategy at Logic Investments. "Realistically, we're looking range-bound," he said.

The Dow Jones industrial average was down 54.94 points, or 0.36 percent, at 15,067.08. The Standard & Poor's 500 Index was down 5.85 points, or 0.36 percent, at 1,620.28. The Nasdaq Composite Index was down 16.96 points, or 0.49 percent, at 3,419.99.

The pan-European FTSEurofirst 300 index of leading regional shares turned lower after early gains, falling 0.41 percent to close at 1,174.79.

The euro zone's blue-chip Euro STOXX 50 index fell 0.62 percent to 2,666.52.

MSCI's all-country world equity index slipped 0.13 percent.

"There just isn't much news to offset the potential negative of what will eventually happen, which is the Fed tapering off," said Rick Meckler, president of LibertyView Capital Management in Jersey City, New Jersey. "You don't have fundamental evidence that the Fed will or will not be tapering off soon, and the market is caught in the middle period."

The Fed appears to be moving toward stepping out of quantitative easing while the BoJ has an aggressive policy in place but is not eager to add to it, said Camilla Sutton, chief currency strategist at Scotiabank in Toronto.

"Increasingly, monetary policy appears to have reached its limit in terms of stimulus," she said.

Brent crude rose above $103, buoyed by the gains in global stock markets despite an unexpected jump in U.S. oil inventories and a cut in estimates for demand growth by the world's big oil market forecasters.

The International Energy Agency said modest economic growth was limiting oil demand worldwide and some developed economies would have absolute declines in consumption this year.

Brent crude oil futures recovered sharply to trade at $103.65 a barrel, up 69 cents on the day, after falling to a low of $102.23 earlier in the session.

U.S. light crude oil rose 70 cents to $96.08.

U.S. government debt prices rebounded but then traded near break-even in choppy trade. The benchmark 10-year U.S. Treasury note was down 5/32 in price to yield 2.2081 percent.

In commodity markets, copper rose off its lowest level in almost six weeks to reach to $7,142 a tonne. while gold steadied at $1,378 an ounce.

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