GLOBAL MARKETS-Dollar hits five-week low on Fed caution, Wall St sags
* Dollar hits five-week low vs basket of currencies * Wall Street opens lower as profit taking sets in By Leah Schnurr NEW YORK, July 26 (Reuters) - Wall Street sagged on Friday as a slew of corporate earnings prompted investors to take a pause, while the dollar fell to a five-week low on speculation the U.S. Federal Reserve will underline next week its intention to keep interest rates low for a long time. Moves by Fed officials to soothe concerns about its stimulus withdrawal plans have seen the dollar tumble this month as equities markets have recovered. Last month the Fed said it expects to start slowing down the pace of its $85 billion in bond purchases later this year. Fed 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. Setting the greenback on its latest fall was a Wall Street Journal report published online Thursday that the Fed may debate tweaking its forward guidance message to hammer home its signal that it will not be raising rates any time soon. Focus is now on next week's two-day policy meeting. The dollar's slide began on July 10, when minutes of the Fed's June meeting gave investors second thoughts about when the bank would start reducing stimulus. "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. As well as the Fed's policy meeting on Tuesday and Wednesday, next week features a round of economic indicators, culminating in the U.S. government's report on non-farm payrolls on Friday. Against a basket of currencies the dollar was down 0.4 percent. The greenback earlier hit 81.548, its lowest since June 20 and just above chart support at 81.506 - its 200-day moving average. The dollar's weakness left the euro at a five-week high of $1.3296. U.S. stocks were lower about an hour after trading started as investors took in earnings results from big names including Amazon.com and Starbucks. With the S&P 500 up about 18 percent for the year, Friday also provided an opportunity for some minor profit taking. For the week, the S&P is down about 0.5 percent, its first down week in five, but the benchmark is up 4.7 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. "There were two days this week, Tuesday and Wednesday when we came strikingly close to the 1,700 (on the S&P 500) but didn't quite move up. There is profit taking here and there as we face this resistance," said Randy Frederick, director of derivatives at the Schwab Center for Financial Research in Cincinnatio, Ohio. The Dow Jones industrial average slipped 92.00 points, or 0.59 percent, to 15,463.61. The Standard & Poor's 500 Index fell 8.30 points, or 0.49 percent, to 1,681.95. The Nasdaq Composite Index was off 11.28 points, or 0.31 percent, to 3,593.91. SUPER MARIO The pan-regional FTSEurofirst 300 fell 0.2 percent and was facing the prospect of its first weekly drop in over a month. World stocks slipped 0.3 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 2-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. "Draghi's speech was a real game changer. Investors' perception of the euro zone dramatically changed, and many people stopped shorting Europe. The systemic fears about Europe's debt crisis are gone," said Pierre-Yves Gauthier, head of strategy at AlphaValue, in Paris. With both the Fed and the European Central Bank meeting next week, plus some significant political events in Europe including Spanish prime minister Mariano Rajoy facing questions in a corruption scandal, BNP Paribas economist Ken Wattret said investors were likely to remain cautious. "You look at the equity markets and the data in the U.S. and Europe has been good yet we are flat, so that probably tells you that we have had a good run and there is a bit of a pause going on," he said. Gold slipped but was still on course for a third weekly gain. Spot gold fell 0.5 percent on the day to $1,326.70 per ounce as buyers cashed in on the day's $1,340 peak, around $150 up from the three-year low hit on June 28.
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