Bernanke boosts dollar, commodities down

 @ibtimes
on October 09 2009 4:24 AM

The dollar rose on Friday after Federal Reserve Chairman Ben Bernanke indicated U.S. monetary policy could be tightened as a recovery takes hold, sending crude and metal prices lower.

World stocks <.MIWD00000PUS> were steady as retreating commodity prices hurt heavyweight miners, offsetting gains in Asia <.MIASJ0000PUS> and emerging markets.

Shares in emerging markets <.MSCIEF> advanced 0.4 percent, hitting a more than 13-month high for the fourth straight day, after better-than-expected U.S. corporate earnings and economic data soothed fears about the strength of the economic recovery.

In Europe, the FTSEurofirst 300 <.FTEU3> index was up 0.3 percent.

Bernanke said on Thursday that the Fed must continue to prop up the economy for an extended period but can't do so indefinitely for fear of triggering an inflationary surge.

His comments lifted the dollar <.DXY> off 14-month lows against a basket of currencies. The greenback was up 1.1 percent at 89.29 yen, while the euro fell 0.5 percent to $1.4723.

Explanations by Fed officials have been helpful in clearing the air on what strategy will be taken as the economy recovers, said Ulrich Leuchtmann, currency strategist at Commerzbank in Frankfurt.

But Leuchtmann said that dollar gains on Bernanke's comments would be limited, as Fed was unlikely to raise rates until the second half of 2010.

The market is not yet ready to jump on the rate rise outlook to aggressively buy the dollar, he said.

Gold prices pulled back to below $1,050 an ounce, snapping a rally that took prices of the precious metal to all-time highs for three days in a row, while oil fell to $71 a barrel.

Governments and central banks around the globe have injected trillions of dollars in the past year or so to pull the world out of a most severe recession since the 1930s Great Depression.

The flood of liquidity has helped boost all investment asset classes from equities to government bonds.

The longer that the rally lasts -- and the higher that equity prices go -- the greater the likelihood that, in this new world, policymakers will see their new job description as being to take away the punch bowl before the party gets going, not just in the usual sense of the word ... but before asset price pick-ups can become booms, said Michael Dicks, head of research and investment strategy at Barclays Wealth, in a report

For this reason, we remain circumspect concerning the longevity of any equities rally persisting through 2010.

In another sign that the economy is on the mend, Europe's largest telecom Telefonica offered bigger-than-expected dividends. The Spanish company said it would hike its dividend per share by nearly 22 percent to 1.40 euros ($2.07) per share, far outstepping analyst expectations for 1.27 euros per share.

Yields on benchmark 10-year U.S. Treasuries were up 5 basis points at 3.301 percent, while the 10-year German bund yield, the euro zone's benchmark, was up 3 basis points at 3.171 percent.

(Additional reporting by Naomi Tajitsu in London; Editing by Toby Chopra)

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