Dollar eases, Europe shares rally as Dec rate hike seen

By Lewis Krauskopf

NEW YORK (Reuters) - The U.S. dollar pulled back on Thursday after four sessions of gains and major European stock markets rallied as expectations built that the U.S. Federal Reserve will hike interest rates next month.

U.S. stocks were slightly lower, while U.S. crude again dipped below $40 a barrel before rebounding.

U.S. data showed fewer Americans filed for unemployment benefits last week, further supporting the view that the Federal Reserve will raise interest rates in December.

"This morning's data simply confirmed that the economic landscape is healthy enough for the Fed to continue with its desired timing for liftoff, which for now the market is expecting to be December," said Ian Lyngen, senior government bond strategist at CRT Capital in Stamford, Connecticut.

 

Futures traders on Thursday placed a 72-percent chance of the Fed raising rates next month, up from 68 percent following the release of the Fed minutes on Wednesday afternoon, according to the CME Group's FedWatch.

The Dow Jones industrial average <.DJI> fell 4.44 points, or 0.03 percent, to 17,732.72, the S&P 500 <.SPX> lost 2.11 points, or 0.1 percent, to 2,081.47 and the Nasdaq Composite <.IXIC> dropped 2.01 points, or 0.04 percent, to 5,073.19.

"We would not be surprised if we limp through to mid-December," said David Carter, chief investment officer at Lenox Wealth Advisors in New York. "It's less than a month away from the Fed decision and I'm not sure anyone wants to put big trades on before that."

The healthcare sector <.SPXHC> weighed on the benchmark S&P 500 index after insurer UnitedHealth Group cut its profit forecast. Mobile payments company Square soared 44 percent in its highly-anticipated market debut.

The pan-European FTSEurofirst 300 index <.FTEU3> climbed 0.4 percent, helped by a jump in shares of food and facilities group Sodexo , which said it would cut costs to cope with a volatile global economy.

Markets in London <.FTSE> and Frankfurt <.GDAXI> were up 0.8 percent and 1.1 percent, respectively. Japan's Nikkei <.N225> rose 1.1 percent, and an index of major global markets <.MIWD00000PUS> rose 0.7 percent.

The U.S. dollar index <.DXY>, measured against a basket of currencies, was off 0.7 percent after hitting a seven-month high a day earlier. The euro rose > 0.7 percent against the dollar.

"That the dollar is lower signals that this outcome (of the December Fed meeting) is increasingly discounted, particularly in the wake of recent, very heavy USD buying," said Todd Elmer, Citi's Asian head of G10 FX strategy.

Yields on longer-dated Treasuries fell as investors braced for the Fed to gradually raise rates after December.

Benchmark 10-year Treasury > prices rose 7/32 for a yield of 2.2465 percent, while the price for the 30-year note > rose 26/32 for a yield of 3.0016 percent.

U.S. crude settled down 0.5 percent at $40.54 a barrel, after dipping below $40 for a second day, with rising U.S. stockpiles serving as the most visible evidence of oversupply in oil markets. Brent crude edged up 0.3 percent to $44.28 a barrel.

Spot gold > rose 1 percent, rebounding from near six-year lows.

The 19-commodity Thomson Reuters/Core Commodity CRB Index <.TRJCRB> rose 0.3 percent after hitting a roughly 13-year low a day earlier. A weaker dollar meant that commodities denominated in the greenback become more affordable for holders of other currencies.

"The dollar is certainly helping commodities today," said Scott Shelton, energy broker and commodities specialist at ICAP in Durham, North Carolina.

(Reporting by Lewis Krauskopf, additional reporting by Tariro Mzezewa and Barani Krishnan in New York, Noel Randewich in San Francisco, Marc Jones, Jan Harvey and Patrick Graham in London; Editing by Nick Zieminski and Bernadette Baum)