GLOBAL MARKETS-Wall street stocks rise, extending 5-week rally

Mon Nov 11, 2013 11:27am EST

* Wall Street stocks rise modestly in subdued trade

* U.S. bond markets shut for Veterans Day

* Gold slides to 3-1/2 week low amid low inflation

* Oil rises toward $106 after China data, no Iran deal

By Ellen Freilich

NEW YORK, Nov 11 (Reuters) - U.S. stocks rose modestly on Monday, extending a five-week rally, but with U.S. bond markets and banks closed for the Veterans Day holiday, trading was subdued.

The dollar's rally paused after two days of strong gains amid continued discussion over when the Federal Reserve might scale back its stimulus, while gold slid to a 3-1/2 week low amid low inflation.

Brent crude oil rose to $106 a barrel after Iran and six world powers did not reach a deal on Tehran's nuclear program and after Chinese data pointed to a rise in fuel demand in the world's biggest energy consumer.

Signs of a solid U.S. recovery boosted world equity markets despite concerns that the Federal Reserve might reduce its economic stimulus.

Surprisingly strong U.S. jobs data last week pushed forward expectations for when the Fed could start tapering its stimulus, lifting Treasury bond yields and the dollar on Friday, without curtailing demand for shares on Wall Street or in other major markets.

On Monday, the Dow Jones industrial average was up 18.75 points, or 0.12 percent, at 15,780.53. The Standard & Poor's 500 Index was up 0.27 points, or 0.02 percent, at 1,770.88. The Nasdaq Composite Index was down 7.51 points, or 0.19 percent, at 3,911.73.

Fed officials, including Chairman Ben Bernanke, have sounded cautious about the prospect for early tapering since the jobs data, though many investors are waiting for Bernanke's nominated successor, Janet Yellen, to give her views before the U.S. Senate on Thursday.

Meanwhile, expectations for U.S. growth helped lift European shares by 0.3 percent and off one-week lows during a subdued session.

Earlier, the recovery hopes had boosted Japan's Nikkei by a hefty 1.3 percent, lifting it from one-month lows.

MSCI's global barometer of world shares added 0.2 percent, though it was still down 1.7 percent from the near six-year highs touched at the end of October, when it seemed the Fed might not taper until well into next year.

Asian shares reflected the concern in emerging markets that an early cutback in Fed stimulus and higher bond rates would direct capital toward the United States.

MSCI's broadest index of Asia-Pacific shares outside Japan shed 0.5 percent, hitting its lowest since Oct. 11 and extending Friday's 1 percent drop.

Emerging Asian currencies also came under pressure on the capital outflow fears. The Indian rupee fell 1.3 percent to 63.281 per dollar and the Indonesian rupiah was down 1 percent to 11,551 per dollar, a one-month low.

DOLLAR REBOUND STALLS

The dollar's rally paused on Monday after two days of strong gains, with further gains seen depending on whether U.S. bond yields keep rising amid intensifying debate on when the Federal Reserve will scale back its stimulus.

The euro has struggled as the Fed and the European Central Bank's diverging monetary policy paths prompt investors to sell the currency at higher levels.

But the U.S. holiday kept many investors on the sidelines, and with volume low, the euro managed some recovery, though analysts cautioned against reading too much into Monday's trading.

"It's a very quiet day with more of a relief bounce" in the euro, said David Song, currency analyst at DailyFX in New York. "The euro could be in line for another move lower from here."

The euro climbed to $1.3406 on lower-than-usual volume but gains were capped as investors began to sell it near $1.3400. The euro hit a two-month low of $1.3295 last Thursday after the ECB surprised the market by cutting its main interest rate to a record low 0.25 percent.

The dollar index fell 0.2 percent to 81.108, having set a two-month high of 81.482 on Friday after a report showed U.S. employers added 204,000 new jobs last month, much more than the 125,000 new jobs expected.

Still, a Reuters poll of U.S. primary dealers on Friday showed just one of the 16 respondents expected tapering to begin in December. Six voted for January, and the majority expected tapering to start in March or later.

SELL THE EURO

Speculators have cut long euro positions and the trend could gather pace with the euro zone facing a prolonged period of falling inflation. That could lead to the ECB deploying more aggressive monetary easing instruments.

Although the ECB's rate-setting committee was split about Thursday's decision to cut rates, Executive Board member Benoit Coeure said on Saturday that the bank could trim interest rates further and provide more liquidity.

In commodity markets, gold took a hit, sliding to a three-and-a-half week low just under $1,280 an ounce to add to Friday's 1.5 percent decline.