Friday, October 9, 2009

Dollar Rises, Bonds Fall on Bernanke Comments; Commodities Drop

By Justin Carrigan

Oct. 9 (Bloomberg) -- The dollar rose against the yen and the euro and government bonds fell after Federal Reserve Chairman Ben S. Bernanke said the bank will tighten monetary policy once the economy improves. Commodities slipped.

The U.S. currency advanced as much as 1.2 percent versus the yen, the most since Aug. 7, and was up 0.4 percent at 8:08 a.m. in New York. Yields on two-year Treasuries and German notes jumped as much as eight basis points. Copper fell 1.1 percent. Futures on the Standard & Poor’s 500 Index declined 0.3 percent.

The Fed will need to raise rates “at some point” to control inflation, Bernanke said at a Board of Governors conference yesterday in Washington. Australia’s Reserve Bank unexpectedly increased its key rate Oct. 6. The MSCI World Index of 23 developed stocks has advanced 4.5 percent this week as U.S. jobless claims fell more than analysts estimated and Alcoa Inc. reported an unexpected profit.

Bernanke’s remarks “were interpreted to suggest that the Fed stood ready to tighten,” Gareth Berry, a currency strategist at UBS AG in Singapore, wrote in a note today. “The comments come as investors look for evidence that the policy tightening timetables of other central banks will be brought forward” after the Australian move.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the currency against the yen, euro, Swiss franc, pound, Swedish krona and Canadian dollar, rose 0.2 percent to 76.054. It fell to 75.767 yesterday, the lowest level since August 2008.

Yen Drops

The yen fell against 13 of the 16 most-traded currencies tracked by Bloomberg, losing 0.4 percent versus the dollar, after Japan’s Cabinet office said machinery orders rose 0.5 percent in August, compared with the 2.1 percent increase predicted in a Bloomberg survey of 27 economists.

The increase in the German two-year yield narrowed the gap, or spread, with the 10-year bund by three basis points to 184 basis points, the lowest level since May 1, based on closing prices. The U.S. Treasury spread also narrowed two basis points, to 234 basis points.

Copper for delivery in three months fell as much as 1.4 percent on the London Metal Exchange, leading a decline in industrial metals. Crude oil slipped 0.7 percent to $71.18 a barrel in New York trading. Gold for immediate delivery declined 0.5 percent to $1,050.03 an ounce. The metal rose to a record for three consecutive days this week.

European Stocks

Basic-resource producers led the decline in Europe’s Dow Jones Stoxx 600 Index, which slipped 0.6 percent after earlier rising as much as 0.3 percent. BHP Billiton Ltd., the world’s largest mining company, fell for the first time in five days, losing 1.5 percent. U.S. futures dropped after the S&P 500 posted four days of gains, the longest streak in a month.

Developing-nation shares rose for a fifth day. The MSCI Emerging Markets Index added 0.3 percent, extending its weekly increase to 4.6 percent, the most since Sept. 11.

The Shanghai Composite Index of stocks in China posted its biggest gain in five weeks as the nation’s markets opened after an eight-day holiday.

China’s banking regulator said today it would be premature for the government to start winding down stimulus efforts in the world’s third-largest economy.

“It’s far too early to talk about an exit strategy,” Liu Mingkang, chairman of the China Banking Regulatory Commission, told a conference in Hong Kong. The economy “may face a bumpy road ahead.”

The International Monetary Fund on Oct. 1 raised its forecast for global growth next year as more than $2 trillion in stimulus packages and demand in Asia pull the world economy out of its worst recession since World War II. The Washington-based IMF said the economy will expand 3.1 percent in 2010, after a July forecast of 2.5 percent.

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