Dollar soars, stocks gain amid talk of Fed QE exit

Global equity markets rose and the dollar soared against a basket of currencies on Friday, reaching a nearly three-year peak, as speculation mounted over whether the Federal Reserve would soon begin to rein in its asset-buying program.

Wall Street opened higher, with the benchmark S&P 500 rebounding from its worst decline in nearly three weeks, following gains in European shares that were lifted by carmakers cheered on by signs of a revival in domestic sales.

Also lifting stocks was a survey that showed a rebound in U.S. consumer sentiment in early May to the highest level in nearly six years as Americans felt better about their financial and economic prospects, particularly among upper income households.

The dollar's strength was largely attributed to the euro, which fell to a six-week low on market talk that the European Central Bank could introduce negative deposit rates, a move that would make banks pay to park their cash overnight with the ECB.

The dollar index <.DXY>, which measures its value against a basket of six major currencies, rose to 84.312, its highest in nearly three years. It last traded at 84.262, up 0.81 percent on the day.

The euro fell 0.55 percent to $1.2810, while the dollar hit a 4-1/2 year high versus the Japanese yen, up 0.55 percent at 102.80.

"People are positive about the U.S. economic recovery despite recent weak data and today's theme is mostly about the broadly strong dollar," said Charles St-Arnaud, FX strategist at Nomura Securities.

"Meanwhile, data in the euro zone shows they remain in a recession and raised expectations the ECB will take further action is weighing on the euro," he said.

A measure of global equity activity, MSCI's all-country world stock index <.MIWD00000PUS>, rose 0.05 percent.

The Dow Jones industrial average <.DJI> was up 66.70 points, or 0.44 percent, at 15,299.92. The Standard & Poor's 500 Index <.SPX> was up 9.98 points, or 0.60 percent, at 1,660.45. The Nasdaq Composite Index <.IXIC> was up 19.64 points, or 0.57 percent, at 3,484.89.

European shares <.FTEU3> bounced off session lows to rise 0.23 percent to 1,248.30.

Gold fell for a seventh straight session, its longest losing streak in four years, driven by speculation the Fed may soon ease its asset-purchase program to boost the economy.

Spot gold prices fell $16.49 to $1,369.20 an ounce.

Comments on Thursday from John Williams, president of the Federal Reserve Bank of San Francisco, that the Fed could begin easing up on stimulus this summer stirred speculation.

Prices for U.S. Treasuries added to losses after the Thomson Reuters/University of Michigan's preliminary reading on the overall index on consumer sentiment rose to 83.7 in early May from 76.4 last month, topping economists' expectations for 78.

It was the highest level since July 2007.

The benchmark 10-year U.S. Treasury note was down 11/32 in price to yield 1.9175 percent.

In Europe, German Bunds hit one-week highs, with traders citing talk the ECB was checking with some banks on whether they were ready for a potential cut in its deposit rate to below zero.

German Bund futures rose as much as 43 ticks on the day to 145.74, before paring gains to trade 9 ticks higher.

Oil climbed towards $105 a barrel, rebounding from an earlier decline and heading for a small weekly gain, although concern about the strength of demand growth limited the rise.

Brent crude rose 78 cents to $104.56 a barrel. U.S. crude future added 68 cents to $95.84.

(Additional reporting by David Brett in London, Reporting by Herbert Lash; Editing by Chizu Nomiyama)

By Herbert Lash

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