Dollar rises on Irish debt woes, M&A aids stocks

The U.S. dollar climbed to a six-week high against major currencies on Monday as worries about Ireland's debt crisis persisted, hurting the euro, while rising U.S. bond yields increased the greenback's appeal.

In the global equity markets, stocks got a boost from proposed acquisitions in the mining and auto sectors.

A rise in the 10-year U.S. Treasury note's yield to a three-month high buoyed the dollar, as investors sold bonds following news that a group of Republican economists and financial services executives will launch a campaign this week urging the Federal Reserve to drop the plan to buy $600 billion of Treasuries.

Increased criticism of the Fed's monetary policy, ranging from leading officials of countries such as Russia and China to some Republican lawmakers and economists, reinforced the inclination to sell Treasuries and take profits before year end.

U.S. data showed U.S. retailers' sales rose more than expected in October, suggesting the economic recovery was on track. But a separate report showed an index of manufacturing in New York State fell in November to its lowest since April 2009 after new orders and shipments tumbled.

"The recovery in the dollar had been driven by consistent surprises in U.S. data over the past two weeks and the disappointing Empire State survey reminded traders that the recovery in the U.S. economy is still uneven," said Kathy Lien, director of currency research at GFT in New York.

But she said the dollar should recoup its initial losses as consumer spending is the U.S. economy's main driver.

The U.S. Dollar Index .DXY, which measures the dollar's performance against a basket of major currencies, rose 0.45 percent to 78.435, after earlier rising as high as 78.629. It has now recouped all losses made after the Fed's November 3 announcement for a second round of quantitative easing.

The euro fell 0.52 percent to $1.3619, while the dollar gained 0.29 percent to 82.74 yen, after having earlier touched 83.28 yen on trading platform EBS.

Investors sold the euro as Ireland struggled to convince them it was in control of its debt problems, leaving open the possibility of a bailout.

The euro has taken a hit in the past week as Irish bond yields have jumped on the country's struggles to control its spiraling debt.

The debt-laden country is fully funded for 2010, but Irish press reports said on Monday it was considering asking for money for its banks, and other European governments were keen to avoid a contagion to other peripheral countries.

"A lot of this is going to depend on how severe this whole euro-zone crisis becomes. Everybody is really focused on the Wednesday meeting with euro-zone finance ministers," said Boris Schlossberg, director of currency research at GFT in New York.

"If they can't come up with some tangible resolution to the Irish problem, then the dollar definitely gets the benefit risk-aversion flows," he added.

U.S. stocks rose as two large proposed acquisitions suggested that investors see value in certain stocks at current elevated levels in a trend that could carry the market through year end.

The Dow Jones industrial average .DJI climbed 84.54 points, or 0.76 percent, to 11,277.12. The Standard & Poor's 500 Index .SPX gained 7.31 points, or 0.61 percent, to 1,206.52. The Nasdaq Composite Index .IXIC rose 12.47 points, or 0.50 percent, to 2,530.68.

Caterpillar Inc (CAT.N) agreed to buy mining equipment maker Bucyrus International Inc (BUCY.O) for $7.6 billion, pushing Bucyrus' shares up almost 29 percent to $89.76. Caterpillar, a Dow component, rose nearly 3 percent to $83.45.

The FTSEurofirst 300 index.FTEU3 of top European shares gained 0.75 percent, after falling for three straight sessions. European stocks rallied on news that German truck maker MAN SE (MANG.DE) and Sweden's Scania (SCVb.ST) were in talks over a possible merger, in a move that could result in Volkswagen (VOWG.DE) taking full control of both.

Japan's Nikkei .N225 gained 1.1 percent to close at 9,827.51, near a 4-1/2-month high hit last week, helped by a weaker yen and better-than-expected Japanese growth data for the third quarter.

MSCI's all-country world stock index .MIWD00000PUS was up 0.3 percent.

Persistent concerns that China will raise interest rates further also spurred selling of riskier assets as traders worried policy tightening will curb the robust demand of the world's second-largest economy for commodities and other imports.

U.S. Treasuries fell as dealers and investors closed out more bets tied to the Federal Reserve's $600 billion bond- purchase program, known as QE2.

On Monday, the Fed bought $7.92 billion in Treasury debt maturing between September 2016 and November 2017, in another purchase that's part of its second round of quantitative easing, or QE2. On Friday, the Fed bought $7.23 billion in Treasury paper maturing in four to six years -- the first of $600 billion in asset purchases the U.S. central bank said it would make in an effort to help stimulate the sluggish economy.

The benchmark 10-year U.S. Treasury note was down 9/32, with the yield at 2.825 percent. The 2-year U.S. Treasury note was up 1/32 with the yield at 0.50 percent. The 30-year U.S. Treasury bond was down 2/32, with the yield at 4.298 percent.

In the energy and commodity markets, U.S. crude oil futures rose 26 cents, or 0.3 percent, to $85.14 per barrel, and spot gold rose $2.66, or 0.19 percent, to $1,371.00 an ounce, steadying after its biggest one-day fall since July 1 the previous session.

Gold's drop from last week's record $1,424.10 an ounce was on concern the market had become overbought and as talk of China's potential interest-rate rise knocked commodity prices sharply lower.

[Source: By Manuela Badawy, Reuters, New York, 15Nov10]

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