* G20 triggers heavy dollar selling, stock buying
* Federal Reserve quantitative easing prospects drive risk
* All three major U.S. equity indexes up solidly
(Adds close of U.S. markets and new quote)
By Jennifer Ablan
NEW YORK, Oct 25 (Reuters) - Investors on Monday continued
a familiar pattern of heavily selling dollars and buying
emerging-market shares, calculating that a Group of 20 meeting
that produced no firm policy initiatives would leave market
trends unchanged.
MSCI's emerging market stock benchmark <.MSCIEF> shot up
more than 1 percent for a year-to-date gain of nearly 13
percent, while the dollar lost 0.45 percent against a basket of
currencies <.DXY>.
European shares gained and all three major U.S. indices
ended slightly higher after rising about 1 percent earlier in
the day.
G20 finance ministers pledged on Saturday to move toward
market-determined exchange rates and commit to a variety of
policies to reduce excessive external imbalances.
But no major policy initiatives emerged and the United
States failed in an attempt to shrink China's surplus.
Consequently, investors extended the recent pattern of selling
the dollar in expectation of further asset-buying from the
Federal Reserve, which entails printing more dollars and lowers
their value.
"By demanding 'market determined exchange rates' (at the
G20) the U.S is opening the floodgates for a further dollar
depreciation due to the ultra-expansionary monetary policy in
the U.S.," Commerzbank analysts said in a note.
The dollar weakened broadly, losing 0.69 percent against
the Japanese yen <JPY=>, while the euro gained 0.16 percent to
$1.3971 <EUR=>.
Analysts at Goldman Sachs said the Fed is almost certain to
announce renewed monetary easing at next week's policy meeting.
They said the Fed may announce $500 billion in asset purchases
or a bit more over a period about six months, and the size
could eventually reach $2 trillion.
PUMPING UP STOCKS
The prospect of more market intervention by the Fed is
again pushing U.S. bond yields lower, reducing the cost of
borrowing dollars and encouraging investors to use those funds
to buy assets such as commodities and stocks.
U.S. light sweet crude oil <CLc1> rose 65 cents, or 0.8
percent, to $82.34 per barrel, but not before jumping more than
a dollar to around $83 early Monday.
Among other commodities, gold rose more than 1 percent,
palladium hit its highest in nearly a decade and copper reached
a 27-month high.
The pan-European FTSEurofirst 300 <> index of top
shares was up 0.31 percent at 1,092.87. Mining stocks led the
charge on the weaker dollar and commodities "investment play."
"Profitability and earnings are going to be up. This is a
sector that will have earnings upgrades," said Philip
Isherwood, European equities strategist at Evolution
Securities, referring to the mining sector. "Even if the dollar
started to steady, there are supply constraints."
Japanese equities fell, with the Nikkei <> losing 0.27
percent as exporters were hurt by the rising yen.
QE2 STILL NEEDED?
JPMorgan Asset Management warned its clients not to become
too carried away with the prospect of quantitative easing, or
QE, the Fed's expected assets purchases.
"Strong asset price gains were seen as one of the primary
objectives of QE, with the central bank reportedly keen to
boost household wealth and to prompt risk appetite within the
economy," it said. "As a result, strong gains ahead of the FOMC
arguably reduce the need for QE and thus increase the chances
of disappointment when the Fed finally announces the outcome of
its deliberations."
Even several members of the Federal Open Market Committee
have made a similar point in recent weeks.
Benchmark U.S. stock indices ended slightly higher, but not
before rising roughly 1 percent.
The Dow Jones industrial average <> was up 31.49
points, or 0.28 percent, at 11,164.05. The benchmark Standard &
Poor's 500 Index <.SPX> was up 2.54 points, or 0.21 percent, at
1,185.62. The Nasdaq Composite Index <> was up 11.46
points, or 0.46 percent, at 2,490.85.
U.S. Treasury debt prices were mixed.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was
unchanged with the yield at 2.56 percent. The 2-year U.S.
Treasury note <US2YT=RR> was down 1/32, with the yield at 0.36
percent. The 30-year U.S. Treasury bond <US30YT=RR> was up
14/32, with the yield at 3.91 percent.
The Reuters/Jefferies CRB Index <.CRB> was up 3.08 points,
or 1.04 percent, at 300.31.
(Reporting by Jennifer Ablan and Jeremy Gaunt; Editing by Dan
Grebler)
