GLOBAL MARKETS-Dollar hits five-week low on Fed caution, Wall St sags

Fri Jul 26, 2013 3:05pm EDT

* Wall Street lower as profit-taking sets in
    * Gold falls with drop in dollar
    * Oil declines on worries over demand in China


    By Leah Schnurr
    NEW YORK, July 26 (Reuters) - The dollar fell to a five-week
low on Friday on expectations the Federal Reserve will underline
its intention to keep interest rates low for a long time at its
upcoming policy meeting, while stocks fell as investors took
profits from recent gains.
    The drop in the dollar pulled gold lower, though bullion was
still on track for a third week of gains. But oil, which
typically benefits from a weaker dollar, slipped on worries
about falling demand in China, the world's second-largest energy
consumer.
    The dollar has tumbled this month as Fed officials have
moved to soothe concerns about plans to withdraw stimulus.
    A Wall Street Journal report published online on Thursday
contributed to the greenback's latest fall. It said the Fed,
which will begin a two-day policy meeting on Tuesday, may debate
tweaking its forward guidance message to hammer home that it
will not raise rates any time soon.
    The dollar was down 0.4 percent against a basket of
currencies. The greenback earlier hit 81.548, its lowest
since June 20 and just above chart support at 81.506, its
200-day moving average.
    In addition to the Fed's meeting, the market's tone next
week could be determined by a round of U.S. economic indicators,
culminating in the government's monthly report on non-farm
payrolls on Friday.
    "Folks are just treading water. They just want to see the
big numbers next week to get some directional guidance," said
Samarjit Shankar, director of market strategy at BNY Mellon in
Boston.
    The dollar's slide began on July 10, when minutes of the
Fed's June meeting gave investors second thoughts about when the
U.S. central bank would start reducing stimulus. 
    Last month the Fed said it expects to start slowing the pace
of its $85 billion in monthly bond purchases later this year.
Chairman Ben Bernanke has since stressed that the timeline is
not set in stone and could change if the economic outlook
shifts, comments that soothed Wall Street and the bond market.
    The dollar's weakness pushed the euro to a five-week
high of $1.3296. But it erased gains to last trade at $1.3277,
slightly lower on the day.
    U.S. stocks were lower in afternoon trading as investors
took in a busy week of earnings results. Among the major
companies to report, shares of Amazon.com were up 2.9
percent after earlier hitting a record. 
    The company reported a second-quarter loss on Thursday but
its domestic business expanded quickly. More than a half dozen
investment banks raised their share price targets on Amazon on
Friday. 
    The Dow Jones industrial average was down 37.65
points, or 0.24 percent, at 15,517.96. The Standard & Poor's 500
Index was down 2.80 points, or 0.17 percent, at 1,687.45.
The Nasdaq Composite Index was up 0.79 points, or 0.02
percent, at 3,605.98. 
    With the S&P 500 up about 18 percent for the year, Friday
provided an opportunity for modest profit-taking.
    For the week, the S&P is down about 0.4 percent, its first
down week in five, but the index is up 4.9 percent so far this
month, its best month since January. The Nasdaq is up 5.5
percent for July so far, its best monthly gain in a year and
half.
    Six of the 10 S&P 500 industry sectors declined and 22 of
the 30 Dow components were also down. .
    "Traders are booking in profits, knowing that next week
you're going to have some significant data that could dictate a
large move in all asset prices to the upside or downside," said
Drew Nordlicht, managing director and partner at HighTower San
Diego.
    "Next week couldn't be a more pivotal, economically packed
week."
    The benchmark 10-year U.S. Treasury note was up
4/32, the yield at 2.5605 percent. 
       
 
    The pan-regional FTSEurofirst 300 closed down 0.3
percent, its first weekly drop in over a month. World stocks
 slipped 0.2 percent.  
    Nevertheless, it was a milestone day for Europe, marking one
year since ECB President Mario Draghi's "Whatever it takes"
speech that turned the tide in the euro zone debt crisis.
    Italy and Spain have seen their two-year bond yields fall
from 5 and 6.4 percent, respectively, before Draghi's speech, to
under 2 percent, saving them immense amounts in interest
payments.
    Gold slipped but was still on course for a third
weekly gain. Spot gold fell about 0.9 percent on the day
to $1,321.69 per ounce as buyers cashed in on the day's $1,340
peak, up around $150 from the three-year low hit on June 28.
    Brent futures for September dropped 48 cents to
$107.17 per barrel after posting a 46-cent gain on Thursday.
U.S. light crude for September settled down 79 cents at
$104.70 a barrel.
    Oil prices were dampened by worries over demand from China
after China's industry ministry ordered companies across 19
industries to close outdated capacity by the end of September.
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