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

Fri Jul 26, 2013 4:51pm EDT

* Wall Street ends slightly higher after early profit-taking
    * Gold also recovers late in the day
    * Oil slips 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 U.S. stocks managed to recover
late in the day to end with a slim gain.
    Gold also erased losses late in the session, racking up its
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 $1.3273,
slightly lower on the day.
    U.S. stocks bounced back from early declines to end little
changed as investors weighed corporate earnings season and the
expected path of monetary policy. Among the major companies to
report, shares of Amazon.com were up 2.9 percent and
closed at 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. 
    With the S&P 500 up more than 18 percent for the year,
Friday had provided an opportunity for modest profit-taking. 
    "I was surprised we ended up, but people have a sense of
optimism about the market," said Matt McCormick, a money manager
at Cincinnati-based Bahl & Gaynor Inc.
    "The bad news from the morning was digested and discarded.
Earnings haven't been as bad as people expected and the
political issues aren't in the forefront right now. That could
change at any moment, but enjoy the summer rally while you can."
    Still, the S&P was slightly lower for the week, making it
the first week in five the benchmark has declined. The index is
up 5.3 percent so far this month, putting it on track to be the
best month since October 2011. The Nasdaq is up 6.2 percent for
July so far, its best monthly gain in a year and half.
    The Dow Jones industrial average edged up 3.22
points, or 0.02 percent, at 15,558.83. The Standard & Poor's 500
Index added 1.40 points, or 0.08 percent, to 1,691.65.
The Nasdaq Composite Index gained 7.98 points, or 0.22
percent, to 3,613.16. 
    The benchmark 10-year U.S. Treasury note was up
4/32, the yield at 2.5643 percent. 
       
 
    The pan-regional FTSEurofirst 300 closed down 0.3
percent, its first weekly drop in over a month. World stocks
 slipped 0.1 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.
    Spot gold cut early losses and was off 0.01 percent
on the day at $1,332.86 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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