Dollar up on Fed speculation; stocks, oil up too

The US dollar rose on Tuesday on speculation the Federal Reserve might curtail a program aimed at keeping interest rates low, while turmoil in Libya lifted energy stocks and oil prices.

The yen fell the most against the dollar since intervention by the Bank of Japan and other major central banks to stop runaway gains in the Japanese currency.

US Treasuries widened losses after the sale of USD 35 billion in five-year notes. It was the second of the Treasury's three auctions of coupons this week, totalling USD 99 billion.

The dollar rose after the president of the St Louis Federal Reserve Bank, James Bullard, told an audience in Prague that the US economy was strong enough for the Fed to curtail its USD 600 billion asset purchase program by about USD 100 billion.

The euro hit a session low of USD 1.4060 versus the dollar on the EBS trading platform after falling through reported bids at USD 1.4080. It last traded above USD 1.410.

US crude oil closed up 81 cents, or 0.8%, at USD 104.79 a barrel, overcoming early weakness, on doubts about Libya's ability to resume oil exports soon after Muammar Gaddafi's troops halted a rebel advance.

Copper tracked gains in equities, while a rebound in agricultural markets boosted gains in commodities ahead of the first-quarter close.

Global, US stocks up

World stocks as measured by MSCI were up 0.3%, reversing an earlier decline of 0.3% brought on by weakness in European shares, particularly banking stocks.

Global stocks rebounded on the strength in US shares, which were powered first by a rise in large-cap technology firms and later energy-related shares.

But trading remained light, a day after Wall Street registered the lowest volume for 2011. About 6.2 billion shares traded in composite volume on the New York Stock Exchange, NYSE Amex and Nasdaq, the second-weakest of 2011 and far below last year's estimated daily average of 8.47 billion.

"The quarter is ending with a lot of uncertainties out there," said Michael Shaoul, chairman of the New York-based Marketfield Asset Management, which oversees USD 973 million.

"There's nothing obvious about what investors need to do in this environment, and that's why you're seeing such low volume," he said. "No one has any reason to recommit capital."

The Dow Jones industrial average ended up 81.13 points, or 0.67%, at 12,279.01. The Standard & Poor's 500 Index added 9.25 points, or 0.71%, at 1,319.44. The Nasdaq Composite Index gained 26.21 points, or 0.96%, at 2,756.89.

Oil services stocks rose for a fifth session as investors continued to add to a sector at its highest since August 2008. The PHLX oil services sector index rose 1.9%.

"Until the oil market cracks, momentum traders are buying the oil services stocks because that's what's working," said Shawn Hackett, president of Hackett Advisors in Boynton Beach, Florida. "Until crude breaks the USD 100 level back down, you're going to continue to see a strong bid on oil service stocks."

European banking shares closed up after falling earlier on a surprise capital increase by Italian bank UBI Banca. The FTSEurofirst 300 index of top European shares ended up 0.04% at 1,125.94.

Yen, bond yields

The dollar and euro both reached their highest levels against the yen since March 18, when the Bank of Japan and others intervened to stop yen gains.

The dollar rose to 82.51 against the yen . The euro hit a 10-1/2 month high against the Japanese currency at 116.24.

"While there are no obvious catalysts for the yen's moves, we suspect that the combination of recent equity market resilience and higher US Treasury yields is weighing on the Japanese currency," said Vassili Serebriakov, currency strategist at Wells Fargo Bank in New York.

The two-year US Treasury yield rose to 0.81%, eight basis points above Friday's close and up 18 basis points in six days, widening its gap over comparable Japanese yields.

US 30-year Treasury bonds briefly fell a point in price after a tepid five-year note auction, rising stocks and hawkish Federal Reserve statements hurt yields across the Treasury curve.

Treasury long bonds were last down 29/32 in price to yield 4.54%, up from 4.50% late on Monday. The yield has risen from 4.38% on March 16.

Portugal's 10- and 2-year yields jumped to euro lifetime highs and Greece's 2-year yields rose 10 basis points to 15.46% after a downgrade by Standard & Poors.

The S&P downgrades left Portugal one notch above junk and Greece's credit-worthiness below that of Egypt, deepening the debt woes of two of the weakest countries in the euro zone.