Dollar sulks as global central banks turn hawkish, stocks drop

By Nichola Saminather

SINGAPORE (Reuters) - The dollar extended its losses on Friday as major central banks signalled that the era of cheap money was coming to an end in a boon to sterling, the euro and Canadian dollar, while Asian shares were hit by dismal performances of European and U.S. markets.

"International markets continued to adjust for a 2018 outlook where other central banks join the Fed in gradually reducing monetary stimulus," Ric Spooner, chief market analyst at CMC Markets in Sydney, wrote in a note.

The dollar index fell 0.1 percent to 95.565, poised for a 1.8 percent slide this week, having fallen in all sessions but one. It is down 1.4 percent for the month, and 4.8 percent for the quarter.

The dollar fell 0.2 percent to 111.925 yen, after losing 0.2 percent on Thursday. It was heading for a 1.2 percent gain for the month, but is down 4.2 percent this year.

Bank of England Governor Mark Carney surprised many on Wednesday by conceding a rate hike was likely to be needed as the economy came closer to running at full capacity.

Sterling was 0.1 percent higher on Friday at $1.3023, adding to Thursday's 0.6 percent gain.

Two top policymakers at the Bank of Canada also suggested they might tighten monetary policy there as early as July.

The dollar slipped 0.2 percent to C$1.2977, extending Thursday's 0.3 percent loss.

Despite comments by sources that European Central Bank President Mario Draghi intended to signal tolerance for a period of weaker inflation, not an imminent policy tightening, the euro on Friday revisited the one-year high of $1.1445 hit on Thursday.

The euro slipped almost 0.1 percent from that level and was fetching $1.14365, retaining most of Thursday's 0.6 percent gain.

"The shifting monetary policy trajectories of other central banks is making other currencies more attractive relative to the U.S. dollar," said Kathy Lien, managing director at BK Asset Management in New York.

In stocks, MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.8 percent, set to end the month up 1.7 percent after hitting a two-year high on Thursday. It is up 5.3 percent for the quarter and has risen 18.3 percent this year.

The negative sentiment infected Chinese shares despite surveys showing activity in the country's manufacturing and services sector accelerated in June from the previous month. Manufacturers appeared to enjoy strong external demand, as new orders and production rose at a solid pace.

The CSI 300 index fell 0.5 percent, while the Shanghai Composite slid 0.4 percent.

Hong Kong's Hang Seng lost 1.1 percent.

Japan's Nikkei tumbled 1.1 percent, shrinking its monthly gain to 1.8 percent and its quarterly increase to 5.8 percent.

Australian shares dropped 1.4 percent, while South Korea's KOSPI lost 0.4 percent.

Overnight, the tech-heavy Nasdaq, with its 1.4 percent loss, led declines on Wall Street. The Nasdaq is poised to post a 0.9 percent loss for the month, but is still up 14 percent this year.

The decline in tech stocks overnight was due to a rotation into bank shares, which have lagged this year, after the biggest U.S. banks revealed buyback and dividend plans that beat analysts' expectations after the Fed approved their capital proposals in its annual stress test program.

The S&P financials index rose as much as 2 percent overnight, while the S&P technology index fell as much as 2.7 percent.

European shares also lost about 1.3 percent as dividend-paying sectors took a hit on prospects for higher interest rates.

In commodities, oil prices continued their recovery this week on a decline in weekly U.S. crude production.

U.S. crude added 0.65 percent to $45.18 a barrel in its seventh straight session of gains, bringing its weekly increase to 5.05 percent, and narrowing its monthly and quarterly losses to 6.5 percent and 10.7 percent respectively.

Global benchmark Brent gained 0.5 percent to $47.61, poised to post a 5.4 percent loss for the month and 9.9 percent for the quarter.

The dollar's weakness this year has been a boon for gold, which is up 8.1 percent in the same period. It was little changed at $1,244.32 an ounce on Friday.

(Reporting by Nichola Saminather; Additional reporting by Rodrigo Campos; Editing by Shri Navaratnam)