* Investors uncertain about extent of Fed asset-buying
* U.S. Treasuries fall before two-year note sale
* Stocks weaken on lackluster earnings, outlooks
(Updates with Europe's market close)
By Manuela Badawy
NEW YORK, Oct 26 (Reuters) - The dollar rose broadly on
Tuesday as investors reassessed the extent of likely Federal
Reserve asset-buying and scaled back bets against the
greenback, while stocks slipped on financial results.
U.S. government debt prices fell before a two-year Treasury
note auction. But traders said a big retreat was unlikely
because the Fed meeting - at which the U.S. central bank is
expected to say it will buy assets to try to revive growth and
avert deflation - is only one week away.
Most currency traders expect the Fed to opt for more
quantitative easing next week, but some easing is priced into
an already weak dollar. The questions of how much easing the
Fed's Open Market Committee does and how fast have kept
investors edgy about building more bearish bets on the dollar.
QE essentially involves printing more money, so a flood of
dollars on the market would debase the currency's value.
"Everything is dependent on the FOMC and people don't want
to take aggressive positions ahead of this very big decision,"
said Stephan Maier, currency strategist at Unicredit in Milan.
The Fed meets next on Nov. 2-3.
But some investors have begun to reconsider the likelihood
of a big burst of QE after comments from Fed officials late on
Monday.
Kansas City Fed President Thomas Hoenig called more asset
purchases by the central bank a "very dangerous gamble." New
York Fed President William Dudley said the U.S. economic
context would determine whether an incremental or sizable
approach to asset purchases was better.
"I think it's still possible that QE II is not a done deal
for November, even though the market has been trading as if it
is," said Brian Dolan, chief currency strategist at Forex.com
in Bedminster, New Jersey.
"This is one of the last bullets the Fed has in its gun and
it's going to be very reluctant to fire it unless circumstances
are really dire. It might be put off until the first quarter. I
think the market has started to consider that this week."
The dollar was up against major currencies, with the U.S.
Dollar Index <.DXY> climbing 0.58 percent at 77.554.
The euro <EUR=> was down 0.66 percent at $1.3871 from a
previous session close of $1.3963. Against the Japanese yen,
the dollar <JPY=> was up 0.64 percent at 81.30 from a previous
session close of 80.780.
The dollar edged away from 15-year lows after Japan's
finance minister Yoshihiko Noda warned the government would
"act decisively" in currency markets if needed.
[]
STOCKS TURN WEAKER
U.S. stocks were little changed a day after hitting a
five-and-a-half month high. Soft commodity prices and
disappointing results from the steel sector weighed on
materials stocks, but Ford Motor Co <F.N> provided a bright
spot with stronger-than-expected earnings, sending its shares
up 1.6 percent to $14.37.
The Dow Jones industrial average <> was down 5.91
points, or 0.05 percent, at 11,158.14. The Standard & Poor's
500 Index <.SPX> slipped 0.18 point, or 0.02 percent, at
1,185.44. The Nasdaq Composite Index <> added 8.71 points,
or 0.35 percent, at 2,499.56.
Texas Instruments Inc <TXN.N> lost 1.6 percent to $28.52 a
day after it warned that fourth-quarter revenue will be hurt by
slowing demand. []
Equities and the dollar have formed an inverse
relationship, made sharper by expectations the U.S. Federal
Reserve will embark on another round of economic stimulus.
MSCI's all-country world stock index <.MIWD00000PUS> was
down 0.42 percent with its emerging market sub-index <.MSCIEF>
sustaining a small loss.
The pan-European FTSEurofirst 300 <> index of top
shares closed down 0.2 percent at 1,090.56 points, after rising
0.3 percent on Monday to end near a six-month high.
European equities fell on uncertainty about QE and comments
from ArcelorMittal <ISPA.AS> that the basic resources sector
faced extended weakness.
"We had a rally since August and now people are waiting to
see whether this quantitative easing is going to come through
or not. There are still some uncertainties and the market is
going to be rangebound until the meeting of the Fed," said Koen
De Leus, strategist at KBC Securities, in Brussels.
Earlier, Japan's Nikkei <> closed down 0.3 percent,
with exporters still in focus because of the strong yen.
U.S. government debt fell on data showing
higher-than-expected consumer confidence and as traders cut
prices ahead of supply .
The benchmark 10-year U.S. Treasury note <US10YT=RR> was
down 15/32, with the yield at 2.6193 percent. The 2-year U.S.
Treasury note <US2YT=RR> was down 2/32, with the yield at
0.3913 percent. The 30-year U.S. Treasury bond <US30YT=RR> was
down 39/32, with the yield at 3.9864 percent.
In energy and commodities, crude oil <CLc1> rose 0.17
percent to $82.66 per barrel while spot gold <XAU=> rose
$2.00, to $13341.40 an ounce.
(Additional reporting by Ellen Freilich, Nick Olivari, and
Leah Schnurr in New York and Jeremy Gaunt in London; Editing by
Kenneth Barry)
