The US dollar fell against major currencies on Tuesday after a senior Chinese currency regulator warned about the risks of excessive dollar holdings, while stocks rebounded as investors bought beaten-down shares.
The weaker dollar helped Brent crude oil prices rise above $116 a barrel, though gains were limited by expectations that OPEC will raise its production targets this week and by worries that an economic slowdown will erode demand.
World stocks as measured by the MSCI world equity index rose 0.5%, snapping a four-session decline. The Thomson Reuters global stock index gained 0.6%. Emerging market stocks climbed 0.4%.
The dollar hit a record low against the Swiss franc and a one-month trough versus the euro after Guan Tao of the State Administration of Foreign Exchange said China must be alert to the risk of holding too many dollars at a time when Washington is pursuing loose monetary and fiscal policies. "It's a sensitive topic for markets, and it does seem that China has had its fill of dollars," said BNY Mellon strategist Michael Woolfolk.
The dollar fell as low as 0.8327 Swiss francs . It also slid 0.6 percent against a basket of major currencies, to 73.514, its lowest in a month. The euro hit a one-month high of USD 1.4694 .
US stocks rose a day after the S&P 500 index hit its lowest in more than two months. Some investors are looking for further volatility and a possible move lower before equities stabilize.
Citigroup's chief US equity strategist said US stock indexes could fall as much as 10% from their May highs, but barring unexpected shocks, should not return to a bear market.
"I think we are in a correction," Citigroup's Tobias Levkovich said at the Reuters 2011 Investment Outlook Summit in New York. "We're just going to struggle along here, and there will be bouts of rallies and pullbacks." A 10 percent correction from the May 2 peak of 1,370 would put the benchmark S&P 500 index at 1,233.
The Dow Jones industrial average was up 51.01 points, or 0.42%, at 12,140.97. The Standard & Poor's 500 Index was up 6.66 points, or 0.52%, at 1,292.83. The Nasdaq Composite Index was up 12.11 points, or 0.45%, at 2,714.67.
The FTSEurofirst 300 index of top European shares surrendered early gains to close down a fraction at 1,104.05, the lowest close since mid-March. It has lost 3.3 percent in the five sessions so far in June.
Federal Reserve Chairman Ben Bernanke could provide clues on the US central bank's view of the economic slowdown and the timing of the Fed's exit from its extremely easy monetary policy at 3:45 pm EDT (1945 GMT) on Tuesday, when he is scheduled to speak.
The dollar has been under pressure in recent months, hurt by worries about the US economic recovery and expectations the Fed will keep benchmark interest rates near zero for longer, even as other major central banks are tightening.
The European Central Bank is expected on Thursday to signal a second rise in rates this year, which could offset worries about a potential Greek debt restructuring.
Brent crude rose as the weaker dollar and Middle East turmoil lifted prices, but news that Saudi Arabia planned to raise output in June regardless of the result of OPEC's Wednesday meeting helped limit Brent's gains and put pressure on US crude futures.
Brent crude oil was up USD 2.64 at USD 117.12 a barrel. US crude rose 45 cents to USD 99.46 a barrel.
Spot gold earlier rose as high as USD 1,550 an ounce. It later pulled back to trade at USD 1,544.80 as investors took profits on the metal's 5% rally in the past three weeks.
US Treasury debt prices remained lower after a solid auction of USD 32 billion of three-year notes. Benchmark 10-year Treasury notes were yielding 3.01%, up from 3% late on Monday.