Dollar weakens broadly, stocks lose ground
The dollar weakened broadly on Thursday on expectations of low bond yields continuing into 2011, while U.S. and European stocks gave back part of the recent gains that had taken global equities close to September 2008 highs.
The Swiss franc soared to record highs against the dollar and the euro as concerns about the European debt crisis reinforced its safe-haven appeal among currency investors.
U.S. stocks dipped in spite of a solid batch of economic data as investors avoided taking on more risk before the new year. Still, the S&P 500 appeared headed for its best December in nearly two decades and a MSCI index of global stocks remained close to September 2008 highs.
There may be more upside, and some more money printing. Companies are in good shape with lots of cash .... but you can't just buy and hold, said Giuseppe-Guido Amato, strategist at Lang & Schwarz in Germany.
There are still the systemic risks of the euro zone sovereign debt crisis.
Highlighting concerns about the euro zone debt crisis, Italy sold 8.1 billion euros ($10.7 billion) of medium and long-term debt but missed the top end of its targeted range for 8.5 billion euros and had to pay higher yields to investors.
European sovereign debt concerns pushed the euro down to 1.2398 francs on trading platform EBS after a Swiss bank targeted an option barrier at 1.2400. It last traded at 1.2461, down 0.3 percent.
The dollar was down 0.19 percent against a basket of major currencies, according to the U.S. Dollar Index. The euro gained 0.33 percent against the greenback to $1.3267.
The dollar has been weakening since a surprisingly strong Treasury auction on Wednesday put pressure on government bond yields. Treasuries yields were modestly higher on Thursday due to stronger-than-expected economic data, but investors expect them to remain under pressure in 2011 as the U.S. Federal Reserve maintains its ultra-loose monetary policy.
Against the Swiss franc the dollar fell to 0.9371 francs on EBS as the euro/Swiss barrier gave way. It was last at 0.9392, down 0.7 percent on the day.
We continue to be Swiss franc bulls, expecting that its status as a European alternative to the euro, a strong sovereign position and relatively solid fundamentals will continue to make it an attractive home for investors, said Camilla Sutton, chief currency strategist at Scotia Capital in Toronto.
Thinning liquidity ahead of the New Year's holiday likely exaggerated price swings in currency markets, traders said.
STOCKS TREADING WATER
U.S. stocks traded flat to lower as the thin liquidity discouraged investors from making big bets.
The Dow Jones industrial average was down 8.86 points, or 0.08 percent, at 11,576.52, while the Standard & Poor's 500 Index dipped 0.97 points, or 0.08 percent, to 1,258.81. The Nasdaq Composite Index edged lower 1.78 points, or 0.07 percent, at 2,665.15.
That weak performance came despite positive economic data, including a government report that showed new U.S. claims for unemployment benefits dropped 34,000 to a seasonally adjusted 388,000, the lowest reading since early July 2008.
Another report showed activity in the U.S. Midwest jumped unexpectedly in December, with help from a gain in employment and new orders. And pending sales of previously owned U.S. homes rose faster than expected in November, though sales remained below normal.
In Europe, the FTSEurofirst 300 index closed down 1.26 percent, its largest one-day retreat this month. Still, the index is on track to post its biggest monthly gain since March. Thursday was the last trading day of the year in several European countries, including Germany, Spain and Italy.
The benchmark MSCI All-Country World Index was practically flat, near Wednesday's close of 330.90, which was the highest since September 2008.
A weaker dollar boosted pushed silver to new 30-year highs while palladium neared its highest in almost ten years, but gold prices fell 0.33 percent to $1,405.90 an ounce after the positive U.S. economic data.
The data also reduced the safe-haven appeal of U.S. government debt. The benchmark 10-year U.S. Treasury note was down 12/32 in price, with the yield at 3.4036 percent, up from 3.36 percent late Wednesday.
(Additional reporting by Chuck Mikolajczak, Wanfeng Zhou, and Karen Brettell in New York, Editing by Chizu Nomiyama)
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