November 9, 2010 / 11:34 PM / 9 years ago

GLOBAL MARKETS-US stocks, commodities drop on risk aversion

* Gold, silver dive as dollar surges

* US stocks fall, pressured by banks, metal companies

* Euro-zone debt worries hang over currency market

(Updates with activity in silver)

By Manuela Badawy

NEW YORK, Nov 9 (Reuters) - Investors pulled away from speculative bets late on Tuesday, roiling U.S. stock and commodities markets and pushing the dollar higher.

Silver reversed from a 30-year high in record trading volume, falling by 3 percent, while gold’s rise to a fourth consecutive record level unraveled, dropping by 1.14 percent.

U.S. government debt prices also dropped as investors were uncertain about demand for Wednesday’s $16 billion auction of 30-year bonds.

“The markets in general are severely overbought and something has to give,” Troy Buckner, managing principal of hedge fund NuWave Investment Management LLC of Morristown, New Jersey.

Investors questioned the potential outcome in various asset classes of the Federal Reserve’s plan to stimulate growth by way of printing more money to buy $600 billion in U.S. bonds.

Heavily indebted countries such as Ireland, Portugal and Spain were also back on investors’ radar on Tuesday: The cost of protecting their government debt against default rising substantially in the past week.

The renewed concerns weighed on the euro EUR=, which hit its lowest in nearly two weeks versus the dollar. It was last trading down 1.07 percent at $1.3772.

The dollar was up against a basket of currencies, with the U.S. Dollar Index .DXY rising almost 1 percent at 77.743. Against the Japanese yen, the dollar JPY= rose 1 percent at 81.98.

U.S. equities fell, led by sharp losses in bank and precious metal stocks.

An index of gold and silver miners’ shares .XAU fell 2.6 percent after hitting an all-time high earlier in the day.

Indeed, the U.S. silver futures market burst into the spotlight of global financial markets on Tuesday, after a 30 percent increase in margins and record trading volume contributed to an abrupt midday decline in stocks and a slide in commodities.

Amid a growing public debate about the level of speculation in the niche market, a much smaller but more volatile proxy for bullion, dealers said silver experienced accelerating long liquidation starting around 1:30 p.m., causing prices to dive after having touched a 30-year high earlier in the session.

While traders said a correction was overdue in a market that surged by as much as 20 percent over the past five days, far outpacing gold’s 6.5 percent rise, few anticipated the knock-on effect it seemed to have on other financial markets.

“The selloff started because the market had gone too far too fast,” said Frank McGhee, head precious metals trader with Integrated Brokerage Services LLC in Chicago.


The Dow Jones industrial average .DJI was down 60.09 points, or 0.53 percent, at 11,346.75. The Standard & Poor's 500 Index .SPX was down 9.85 points, or 0.81 percent, at 1,213.40. The Nasdaq Composite Index .IXIC was down 17.07 points, or 0.66 percent, at 2,562.98.

The December futures contract for the Nikkei 225 stock index <0#NK:> trading in Chicago rose 20 points to 9,745.

European shares .FTEU3 shrugged off euro zone debt concerns to close at their highest level in more than two years with the pan-European FTSEurofirst 300 .FTEU3 index of top shares up 0.6 percent at 1,117.46 points, its highest close since September 2008.

The MSCI all-country world equity index .MIWD00000PUS eased 0.17 percent. Emerging market stocks .MSCIEF were up 0.04 percent.

U.S. Treasury debt prices fell after an auction of the benchmark notes and ahead of the sale of 30-year bonds on Wednesday.

The benchmark 10-year U.S. Treasury note US10YT=RR was down 29/32, with the yield at 2.6613 percent. The 2-year U.S. Treasury note US2YT=RR was down 3/32, with the yield at 0.4427 percent. The 30-year U.S. Treasury bond US30YT=RR was down 2-1/32 in price, with the yield at 4.2505 percent.

“Bonds are selling off due to both inflationary fears (commodity market bubbles), the idea that maybe the Fed won’t buy as many bonds, and due to the euro sovereign debt issues resurfacing,” Buckner at NuWave Investment Management said.

Spot gold prices XAU= fell $16.05, or 1.14 percent, to $1,393.00 from an all-time high touched earlier at $1,420.90 an ounce, while silver XAG= fell 3 percent to $26.80 after touching a 30-year high of $29.33 an ounce.

U.S. crude oil CLc1 fell 34 cents, or 0.39 percent, to $86.40 per barrel, after touching $87.63, its highest since October 2008. (Additional reporting by Herb Lash; Editing by Kenneth Barry and Andrew Hay)

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