Wednesday, 4 June 2008

:: Jun 4 GLOBAL MARKETS-Strong dollar, financial worries stir investors
Wed Jun 4, 2008 7:35am EDT

By Jeremy Gaunt, European Investment Correspondent

LONDON, June 4 (Reuters) - Prospects of a stronger dollar threatening the commodities boom and worries about the global financial sector sent European equities sharply lower on Wednesday and set Wall Street up for a poor start.

Tokyo stocks, however, were boosted by a weaker yen. Oil was consistent with the idea of easing commodity prices, falling below $124 a barrel, more than 8 percent below its peak two weeks ago.

The catalyst for many market moves remained Federal Reserve Chairman Ben Bernanke's unusually explicit warning on Tuesday about the inflationary threat from a weak U.S. currency.

It was widely taken as a signal that the Fed was done with its rate-cutting cycle and boosted the dollar, which is now up more than 2 percent in a week against a basket of currencies .DXY.

Commodity markets have surged over the past 12 months as investors sought protection from the twin risks of inflation and a declining dollar by piling into everything from oil and gold to rice and copper. That long commodities-short dollar trading strategy may be about to unwind.

In Europe, where many share indexes are linked to commodities through mining and oil companies, stocks took a hit. The pan-European FTSEurofirst 300 was down 1.7 percent.

There were also deep concerns about the state of the financial sector focused on the possibility that Lehman Brothers (LEH.N: Quote, Profile, Research) may need to raise more capital.

"The dollar actually rules the roost today," said Howard Wheeldon, a senior strategist at BGC Partners. "We are reminded that the dollar isn't just about oil, it has a significant affect on all commodities.

"The theme out there is very, very depressing. Good news is in very short supply (and) we've got to sit this one out for some while yet."


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