GLOBAL MARKETS-Dollar gains, world shares slip on wary view of Fed

Thu Dec 12, 2013 12:53pm EST

* European shares slip

* Stronger-than-expected U.S. retail sales data adds pressure

* Cut in Fed stimulus could come as early as next week

By Herbert Lash

NEW YORK, Dec 12 (Reuters) - The dollar rose and global equity markets slipped to a one-month low on Thursday after stronger-than-expected U.S. retail sales data added to jitters about when the Federal Reserve will start trimming its stimulus.

The Commerce Department said retail sales increased 0.7 percent in November as Americans bought automobiles and a range of other goods. The increase was the largest in five months and followed a 0.6 percent rise in October.

Bond traders trimmed their holdings on the notion the solid retail sales data suggested a strengthening economy that could draw the Fed closer to reducing the pace of monetary stimulus.

"It puts in question the belief about the tapering early next year," said Thomas Roth, executive director of U.S. government bond trading at Mitsubishi UFJ Securities in New York, about retail sales.

"It also raises the possibility a rate hike might happen sooner rather than later," Roth said.

According to a Reuters poll released on Wednesday, 32 economists expected the Fed to begin to taper in March, while 22 said it would scale back in January. Only 12 economists expected a tapering announcement next week when Fed policy-makers hold their last meeting of the year.

MSCI's all-country world equity index, which tracks shares in 45 countries, fell 0.77 percent to a one-month low. The pan-European FTSEurofirst 300 of leading regional shares hit a two-month low after a surprise fall in the euro zone's industrial output in October.

The index closed down 0.93 percent at 1,244.66

Banking shares were among the biggest losers, with HSBC Holdings Plc, closing down 0.4 percent at 646.2 euro, and Banco Santander SA off 1.45 percent at 6.059.

Euro zone industrial production dropped 1.1 percent, its biggest monthly decline since September 2012, indicating weakness in the bloc's recovery. Data from EU statistics agency Eurostat support the case for further central bank stimulus.

Stocks also fell on Wall Street.

The Dow Jones industrial average fell 126.45 points, or 0.8 percent, to 15,717.08, the S&P 500 lost 8.71 points, or 0.49 percent, to 1,773.51 and the Nasdaq Composite dropped 7.607 points, or 0.19 percent, to 3,996.206.

Shares of Facebook were up 3.58 percent at $51.15 after Standard & Poor's announced Wednesday the social media giant will join the S&P 500 stock index.

Lululemon Athletica Inc shares fell more than 10 percent to $60.85 after the company said it expects flat same-store sales in the crucial fourth quarter.

The dollar gained across the board, helped by the U.S retail sales report.

"The strong U.S. retail sales number was definitely a positive factor for the dollar. This could lead to some upward revisions in the gross domestic product for the fourth quarter," said Brian Dangerfield, currency strategist at RBS Securities in Stamford, Connecticut.

The dollar index, which tracks the dollar against six major currencies, rose 0.36 percent to 80.183 after three days of losses.

The euro fell 0.26 percent against the dollar to $1.3749 , ending a seven-day winning streak. It has gained nearly 4 percent since Nov. 11 and is close to its 2013 peak of $1.3832.

The dollar advanced 0.62 percent versus the yen to 103.05 yen, after two days of losses. The euro also gained against the yen, up 0.3 percent at 141.65 yen.

Brent oil futures fell below $109 a barrel on the possible reopening of major Libyan ports this weekend and expectations that the Fed may soon unwind a stimulus program.

"Overall it's bearish risk," Olivier Jakob at Petromatrix consultancy in Switzerland said. "The odds of the tapering timeline being announced at this meeting seem a bit more likely."

Brent crude oil fell $1.03 to $108.67 a barrel. U.S. crude futures for January delivery were up 19 cents at $97.63 a barrel.