U.S. dollar rebounds after Fed; world stocks dip
NEW YORK (Reuters) - The U.S. dollar rose on Tuesday as investors took a breather selling the currency, driving down European and Asian stocks.
Investors paused selling the U.S. dollar, which hit a 15-month low on Monday, after Federal Reserve Chairman Ben Bernanke acknowledged the dollar's slump was causing some prices to rise but said other factors restraining inflation were winning the day.
U.S. stocks rose at the end of business on Tuesday to fresh 13-month highs as upbeat broker views on improving prospects for two Dow components offset disappointing spending outlooks from retailers Target (TGT.N) and Home Depot (HD.N).
Bernanke's comments on Monday dulled risk appetite and caused investors to cut bets against the dollar.
The MSCI world equity index .MIWD00000PUS fell 0.46 percent, having hit its highest since September 2008 on Monday, as investors stepped back from risk trades and took a breather from an eight-month rally that has pushed the index 75 percent higher.
The Dow Jones industrial average .DJI ended up 0.29 percent, at 10,437.42. The Standard & Poor's 500 Index .SPX rose 0.09 percent, at 1,110.32, while the Nasdaq Composite Index .IXIC rose 0.27 percent, at 2,203.78.
Investors shrugged off a weaker-than-expected U.S. industrial production report which earlier in the day pressured the stock market on concerns about the sustainability of the economic recovery.
COMMODITIES SHRUG DOLLAR
A weaker dollar typically supports commodity prices because dollar-priced contracts -- such as those for oil and gold -- become cheaper for buyers using other currencies.
Despite a rebound in the dollar, commodities such as oil and gold ended slightly higher on the day on short-covering.
Crude oil rose 23 cents to $79.13 a barrel supported by a rally in refined product futures, while gold prices rose 65 cents to $1140.60, just a tad lower from a record high of $1,143.25 touched on Monday.
Meanwhile, a report showed U.S. industrial production rose by a smaller-than-expected 0.1 percent in October as auto manufacturers scaled back following the end of the "cash for clunkers" government incentive program.
Investors are worried about the sustainability of the economic recovery when stimulus spending winds down.
"All of this adds up to concern in the markets today about the strength and durability of the recovery and will weigh on recent gains," said Jim Awad, managing director at Zephyr Management in New York.
WORRIES ON THE DOLLAR Continued...
