Dollar rallies to fresh highs; global stocks and oil fall

By Rodrigo Campos

NEW YORK (Reuters) - The dollar powered higher yet on Friday, pressuring stocks and commodities, on expectations of a Federal Reserve interest rate hike that could slow U.S. corporate profits.

The dollar index was on track for a back-to-back weekly gain of more than 2 percent, setting up its strongest two-week performance in more than six years.

Stocks fell on Wall Street, with the S&P 500 set to post its third straight negative week. The index is about 3 percent below its record high set this month. Energy stocks were among the biggest losers, falling along with a steep decline in crude oil.

"The stronger dollar, the continued hammering of the euro equals continued lower equity prices ahead of the Fed comments next week," said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.

"We'll know more of the Fed's thinking on Wednesday but right now most people are expecting a rate hike to come in June and the equity markets not to be very receptive of that."

The Dow Jones industrial average fell 220.21 points, or 1.23 percent, to 17,675.01, the S&P 500 lost 20.53 points, or 0.99 percent, to 2,045.42 and the Nasdaq Composite dropped 39.60 points, or 0.81 percent, to 4,853.69.

The MSCI All-Country World equity index was down 0.9 percent, and emerging-markets stocks <.MSCIEF> fell 1.2 percent.

The FTSEurofirst 300 pan-European index closed up 0.3 percent. Stocks in Europe continued to be supported by the massive bond-buying programme at the European Central Bank.

Investors are now looking ahead to the Federal Reserve's policy meeting on Tuesday and Wednesday, hoping that it will yield clues about the timing of a rate increase.

The divergence in monetary policy continued to push the euro lower against the greenback, hitting a 12-year low of $1.0460. It was last down 1.5 percent at $1.0474.

The dollar rallied even after disappointing U.S. inflation and consumer sentiment data, which normally would weaken the currency.

"This isn't so much about the data, rather the Fed and what to expect from next week's meetings," said Camilla Sutton, chief currency strategist at Scotia Capital in Toronto.

The dollar index added 0.9 percent to 100.32.

U.S. crude fell 4.1 percent to $45.14 per barrel, while Brent crude fell 4.2 percent to $54.69. The global oil glut is getting bigger and U.S. production shows no sign of slowing, the International Energy Agency said.

Largely because of the oil selloff, the Thomson Reuters/CRB Commidities Index <.TRJCRB> settled at a six-year low.

The U.S. benchmark 10-year Treasury note yield rose to 2.1157 percent from Thursday's 2.096 percent, reflecting a price decrease of 6/32.

"The market's consolidating," said Kim Rupert, managing director of global fixed income at Action Economics in San Francisco. "It's hard to be a buyer at this point."

Spot gold edged up 0.2 percent to $1,156 an ounce, following nine consecutive sessions of declines. Copper also gained 0.2 percent and was on track to finish the week with a 2 percent gain.

(Reporting by Rodrigo Campos; Additional reporting by Daniel Bases, Caroline Valetkevitch and Michael Connor; Editing by James Dalgleish, Leslie Adler and Christian Plumb)