GLOBAL MARKETS-Dollar's rise hits oil, gold; shares sag after recent gains

Last Updated: Mon, May 13, 2013 13:30 hrs

* Dollar firm after G7 shows little concern at Japanese easing

* Yen hits fresh 4-1/2-year low vs dollar

* European shares dip from 5-year highs, Wall Street seen soft

* Strong dollar weighs on dollar-based commodities prices

By Marc Jones

LONDON, May 13 (Reuters) - The dollar continued to strengthen on Monday, sending oil and gold prices lower, after the Group of Seven backed Japan's efforts to spur growth via aggressive monetary easing.

An unexpected rise in U.S. retail sales in April as households bought cars, home improvement materials and a range of other goods, also underpinned the dollar as it pointed to underlying strength in the world's biggest economy.

Wall Street, however, was expected to see some mild profit taking on opening following a stellar run to record highs.

The dollar, which has risen 5 percent against a basket of major currencies since February, and double that versus the yen, looked unlikely to buckle after officials at a G7 meeting in Britain over the weekend showed little concern about the yen's slump.

It hit a new 4-1/2 year high of 102.15 yen in Asian trading and was on the front foot again at 102.96 yen and $1.2953 against the euro following the U.S. retail sales numbers.

"Yen selling will have been encouraged by the outcome from the G7 meeting where officials reiterated that they will tolerate yen weakness as long as it results from the use of domestic instruments to stimulate the Japanese economy," said Bank of Toyko-Mitsubishi currency analyst Lee Hardman.

A stronger dollar makes dollar-denominated commodities such as oil more expensive for many countries and Brent oil prices slipped back below $103 a barrel with ample supply levels weighing on sentiment as well.

Weaker-than-expected industrial output data from China also helped push oil prices lower. London copper, however, climbed 0.2 percent, as the data raised hopes that monetary authorities in the world's biggest metals consumer may embark on further easing to underpin demand.

China's annual industrial output grew 9.3 percent in April, up from a seven-month low of 8.9 percent in March but still missing market expectations for a 9.5 percent expansion.

Spot gold, often bought as an alternative to the dollar, fell as much as 1.5 percent to a low of $1,426.40.


European shares started the week at five-year highs but that gave investors a reason to cash in some gains ahead of industrial production data for the euro area on Tuesday and first-quarter economic growth figures on Wednesday.

Europe's blue chip stocks on the FTSEurofirst 300 index were 0.3 percent lower shortly ahead of the U.S. open as London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX slipped 0.2 to 0.4 percent. MSCI's global index was flat at 374.29 points.

Strategists at Deutsche Bank said the longer-term trend remained positive, citing stronger data from the United States and early signs of a turnaround in Europe. "We remain both strategically and tactically positive on euro area equities," they wrote in a note.

Italy's three-year debt costs fell to their lowest since January at auction on Monday as the backstop of promised ECB support continued to bolster demand for the bonds of the euro zone's more indebted members.

Comments from Italian Ignazio Visco, one of the European Central Bank's top policymakers, suggesting the ECB could cut its deposit rate below zero lifted benchmark German Bund futures from their lowest in more than a month after a sell-off last week on upbeat euro zone and U.S. data.

If the ECB did push its zero percent deposit rate into negative territory, banks would effectively be charged for parking any spare cash they don't lend.

Analysts believe that would send investors into other more profitable ultra-safe assets such as Bunds.

"We all agreed in the (ECB Governing) Council that we have to look with care and in that case we may reduce the rate," Visco told CNBC in an interview.

"We think that - and I personally think that, this is effective - the economy now is capable of taking it on board."

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