Dollar jumps on data, Europe woes; stocks, commodities fall

By Rodrigo Campos

NEW YORK (Reuters) - The U.S. dollar rallied on Tuesday after a string of healthy economic data boosted near-term rate hike prospects, while Greece's financial crisis and signs of growing opposition to austerity in Spain weighed further on the euro.

Stocks and commodities took a knock as the greenback pushed higher, boosted by a solid increase in a gauge of U.S. business investment spending in April.

Other reports showed U.S. consumer confidence improved this month and house prices extended gains in March, which should boost household equity, support consumer spending, and allow the Federal Reserve to move ahead in its plan to raise interest rates later this year.

Markets in the United States as well as London and Frankfurt returned to action after a long holiday weekend, with the mood in Europe unsettled as voters in Spain punished the ruling Popular Party after years of austerity policies. Greece, which has warned it may miss a June 5 debt repayment to the International Monetary Fund, also concerned markets.

Stocks opened lower on Wall Street weighed by the stronger dollar, which gained as much as 1.38 percent against a basket of major currencies , pushing for its largest daily move in almost two years.

The selling in stocks "is a reaction to a slightly stronger dollar as a result of the continuing saga in Europe," said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin.

"The risk-averse move is purely sentiment-driven, not by the economics."

The Dow Jones industrial average fell 213.04 points, or 1.17 percent, at 18,018.98, the S&P 500 lost 22.83 points, or 1.07 percent, at 2,103.23 and the Nasdaq Composite was down 62.90 points, or 1.24 percent, at 5,026.47.

The pan-European FTSEurofirst 300 index dropped 0.8 percent and the euro zone's blue-chip Euro STOXX 50 index <.STOXX50E> slid 1 percent.

The dollar's move to a one-month high against a currency basket extended a rally triggered by Friday's U.S. inflation data and comments from Fed Chair Janet Yellen that she expected the economy to strengthen. The dollar topped 123 yen to a level last seen in July 2007.

"The dollar is back on a bullish trend," said Ian Stannard, head of European FX strategy with Morgan Stanley in London.

"Dollar yen breaking through the top of the range is an important event."

The Japanese currency recovered some of its loss and was last at 122.87 yen per U.S. dollar.

Short-dated U.S. Treasury yields hit two-week highs on continued expectations that the Fed would hike rates this year, before flattening out on the day on the view that the Fed will not move too sharply.

Two-year Treasury notes were last flat in price to yield 0.626 percent. Benchmark 10-year Treasury notes were last up 25/32 in price to yield 2.139 percent, from a yield of 2.229 percent late Friday.

U.S. 30-year prices were last up 2-5/32 to yield 2.8919 percent , from a yield of 3 percent late Friday.

Commodity markets were pressured by the strength in the dollar. Spot silver fell 2.4 percent and spot gold lost 1.6 percent, while copper was down 0.8 percent.

Brent crude tumbled 3.2 percent to $63.40, further pressured by the possibility that U.S. shale oil producers could increase drilling activity. U.S. crude also fell 3.2 percent.

(Additional reporting by Sam Forgione and Michael Connor; Editing by Meredith Mazzilli)