NEW YORK (Reuters) - The U.S. dollar tumbled to a three-year low against major currencies on Thursday and gold prices surged to a record high as investors flocked to investments that are less reliant on the U.S. economy.
Strong U.S. and European corporate earnings propelled world stocks to a 33-month high. Many U.S. companies have huge chunks of business outside the country, where demand and investments are growing, providing a cushion as the U.S. economy shows signs of slowing again due to weak job growth and rising oil prices.
The dollar’s decline accelerated this week after a warning by Standard & Poor’s on the United States’ massive debt load and as the economy showed signs of slowing. Equities markets, however, were largely unaffected by S&P’s warning.
The dollar has already been hurt by the Federal Reserve’s near-zero interest-rate policy and overseas central banks’ diversification from the U.S. currency, despite the festering fiscal problem in Europe.
S&P said on Monday it might take away the United States’ coveted AAA credit rating within two years if Washington fails to achieve a plan to slash its $14 trillion debt load.
“All these factors are just dollar negative,” said Jessica Hoversen, currency and bond analyst at MF Global in New York. “Barring something happens in Europe, the dollar will probably continue to turn lower.”
But in noting Wall Street’s resilience, she added, “Stocks are not backed by the credibility of the dollar and so many U.S. companies are multi-national.”
Emboldened investors are now piling back into riskier assets, though some analysts advised caution as worries about the euro zone’s debt crisis and problems in the supply chain following the Japanese earthquake stayed in the background.
Expectations that the U.S. central bank will keep interest rates at near zero for the foreseeable future, even as other major central banks raise rates or are about to tighten, have pressured the dollar in recent weeks.
The dollar index .DXY was down 0.4 percent at 74.092 after falling to 73.735, its lowest level since August 2008. Light holiday trading volume magnified foreign central banks’ gradual reduction of the U.S. dollar from their reserves.
Technical charts suggested the U.S. dollar index could move toward a record low of 70.698 hit in 2008.
U.S. financial markets will be closed Friday for Good Friday, while British markets will be closed both Friday and Monday for the long Easter weekend.
The weak greenback and inflation concerns raised the appeal of gold. Spot gold hit a record high at $1,508.75 before paring gains, while spot silver soared to a 31-year high at $46.68 an ounce.
“People want hard assets and that’s what people are comfortable with,” said Randy Billhardt, head of institutional sales and trading at MLV & Co. in New York.
Investors snapped up stocks as strong earnings overshadowed weaker-than-expected economic data from Germany and the United States.
The MSCI All-Country World Index rose for a third straight day. It was up 0.8 percent, touching a high of 350.83, a level last seen in July 2008.
Wall Street posted its first positive week in three, as blowout results from Apple and strong results from a number of industrial companies kept sentiment on the bullish side.
The Dow Jones industrial average .DJI was up 52.45 points, or 0.42 percent, at 12,505.99. The Standard & Poor's 500 Index .SPX was up 7.02 points, or 0.53 percent, at 1,337.38. The Nasdaq Composite Index .IXIC was up 17.65 points, or 0.63 percent, at 2,820.16. .N
The FTSEurofirst 300 .FTEU3 index of top European shares ended up 0.4 percent.
Asian shares climbed to their highest since January 2008. The MSCI Asia ex-Japan index gained 1.3 percent, while Japan's Nikkei .N225 closed up 0.8 percent.
Oil prices rebounded from earlier losses linked to weak data on U.S. jobs and regional manufacturing. U.S. June crude futures rose 84 cents to settle at $112.29 a barrel.
“It’s two steps forward, one step back. I don’t see anything in them that’s concerning for the general direction of the economy,” said Jim Baird, chief investment strategist at Plante Moran Financial Advisors in Kalamazoo, Michigan.
Thursday’s U.S. economic reports supported the Treasury bond market, reinforcing expectations that the Fed, which holds a policy meeting next week, will pledge to keep interest rates low well into next year.
The benchmark 10-year U.S. Treasury note was up 4/32 in price to yield 3.39 percent, down 0.01 percentage point from late on Wednesday. <US/>
The weaker outlook also reduced investors’ expectations on U.S. inflation. The five-year breakeven rate, which is the yield gap between five-year Treasury Inflation-Protected Securities and regular five-year government debt, fell to 2.31 percent, down 0.03 percentage point from late Wednesday.
Additional reporting by Wanfeng Zhou, Karen Brettell, Frank Tang and Robert Gibbons, Editing by Chizu Nomiyama, Leslie Adler and Jan Paschal