| NEW YORK
NEW YORK Investors on Monday continued a familiar pattern of heavily selling dollars and buying emerging-market shares, calculating that a Group of 20 meeting that produced no firm policy initiatives would leave market trends unchanged.
MSCI's emerging market stock benchmark .MSCIEF shot up more than 1 percent for a year-to-date gain of nearly 13 percent, while the dollar lost 0.45 percent against a basket of currencies .DXY.
European shares gained and all three major U.S. indices ended slightly higher after rising about 1 percent earlier in the day.
G20 finance ministers pledged on Saturday to move toward market-determined exchange rates and commit to a variety of policies to reduce excessive external imbalances.
But no major policy initiatives emerged and the United States failed in an attempt to shrink China's surplus. Consequently, investors extended the recent pattern of selling the dollar in expectation of further asset-buying from the Federal Reserve, which entails printing more dollars and lowers their value.
"By demanding 'market determined exchange rates' (at the G20) the U.S. is opening the floodgates for a further dollar depreciation due to the ultra-expansionary monetary policy in the U.S.," Commerzbank analysts said in a note.
The dollar weakened broadly, losing 0.69 percent against the Japanese yen, while the euro gained 0.16 percent to $1.3971.
Analysts at Goldman Sachs said the Fed is almost certain to announce renewed monetary easing at next week's policy meeting. They said the Fed may announce $500 billion in asset purchases or a bit more over a period about six months, and the size could eventually reach $2 trillion.
PUMPING UP STOCKS
The prospect of more market intervention by the Fed is again pushing U.S. bond yields lower, reducing the cost of borrowing dollars and encouraging investors to use those funds to buy assets such as commodities and stocks.
U.S. light sweet crude oil rose 65 cents, or 0.8 percent, to $82.34 per barrel, but not before jumping more than a dollar to around $83 early Monday.
Among other commodities, gold rose more than 1 percent, palladium hit its highest in nearly a decade and copper reached a 27-month high.
The pan-European FTSEurofirst 300 .FTEU3 index of top shares was up 0.31 percent at 1,092.87. Mining stocks led the charge on the weaker dollar and commodities "investment play."
"Profitability and earnings are going to be up. This is a sector that will have earnings upgrades," said Philip Isherwood, European equities strategist at Evolution Securities, referring to the mining sector. "Even if the dollar started to steady, there are supply constraints."
Japanese equities fell, with the Nikkei .N225 losing 0.27 percent as exporters were hurt by the rising yen.
QE2 STILL NEEDED?
JPMorgan Asset Management warned its clients not to become too carried away with the prospect of quantitative easing, or QE, the Fed's expected assets purchases.
"Strong asset price gains were seen as one of the primary objectives of QE, with the central bank reportedly keen to boost household wealth and to prompt risk appetite within the economy," it said. "As a result, strong gains ahead of the FOMC arguably reduce the need for QE and thus increase the chances of disappointment when the Fed finally announces the outcome of its deliberations."
Even several members of the Federal Open Market Committee have said that asset purchases are not a sure thing. Late Monday, New York Fed President William Dudley said: "I would put very little weight on what is priced in or not priced into the market. We make our decision on the way we think is the best way to achieve our mandate," he said.
Benchmark U.S. stock indices ended slightly higher, but not before rising roughly 1 percent.
The Dow Jones industrial average .DJI was up 31.49 points, or 0.28 percent, at 11,164.05. The benchmark Standard & Poor's 500 Index .SPX was up 2.54 points, or 0.21 percent, at 1,185.62. The Nasdaq Composite Index .IXIC was up 11.46 points, or 0.46 percent, at 2,490.85.
U.S. Treasury debt prices were mixed.
The benchmark 10-year U.S. Treasury note was unchanged with the yield at 2.56 percent. The 2-year U.S. Treasury note was down 1/32, with the yield at 0.36 percent. The 30-year U.S. Treasury bond was up 14/32, with the yield at 3.91 percent.
The Reuters/Jefferies CRB Index .CRB was up 3.08 points, or 1.04 percent, at 300.31.
(Reporting by Jennifer Ablan and Jeremy Gaunt; Editing by Dan Grebler)