* Dollar gains as investors reduce short bets
* Uncertainty over size of Fed economic stimulus
* Fed may buy few hundred billion dollars of bonds--WSJ
(Updates U.S. market's close, Nikkei's futures)
By Manuela Badawy
NEW YORK, Oct 27 (Reuters) - The dollar rose while stocks
and commodities fell on Wednesday on doubts over how
aggressively the Federal Reserve is going to attempt to
stimulate the flagging U.S. economy.
Investors had been pricing in large-scale bond purchases by
the Fed. That view lifted equities, commodities and emerging
market assets in recent weeks while the dollar fell because
more Fed injection of funds into the economy via quantitative
easing would lower the currency's value, at least in the short
term.
"The dollar's slide since September has been pricing in
aggressive price action by the Fed to around $1 trillion," said
Omer Esiner, chief market analyst at Commonwealth Foreign
Exchange.
But market participants have begun to scale back
expectations of the Fed's intentions. The Wall Street Journal
said on Wednesday that the Fed is likely to unveil an
asset-purchase program worth a few hundred billion dollars over
several months. It said officials want to avoid a "shock and
awe" approach in their announcement, expected next week. For
details, see [].
"Some stabilization, Fed official comments and the Wall
Street Journal article have resulted in investors' paring back
those aggressive expectations. Given the price action, we can
assume they are trimming those short dollar bets," Esiner
said.
A Reuters survey on Oct. 8 showed U.S. primary dealers
expected the size of the quantitative easing to be between $500
billion and $1.5 trillion.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
For a survey on size of QE, click []
For possible FOMC outcomes, click []
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
The dollar was up against major currencies, with the U.S.
Dollar Index <.DXY> up 0.48 percent at 78.084.
The euro <EUR=> was down 0.64 percent at $1.377. Against
the Japanese yen, the dollar <JPY=> was up 0.38 percent at
81.71.
WORLD STOCKS, COMMODITIES PRESSURED
The uncertainty over the size and pace of quantitative
easing dampened some equities and commodity prices.
The Dow Jones industrial average <> ended down 43.18
points, or 0.39 percent, at 11,126.28. The Standard & Poor's
500 Index <.SPX> was down 3.19 points, or 0.27 percent, at
1,182.45. The Nasdaq Composite Index <> gained 5.97
points, or 0.24 percent, to 2,503.26.
"People care more about quantitative easing than anything
else today," said Michael O'Rourke, chief market strategist at
BTIG LLC in New York.
"The Fed lowering what it could do should put some pressure
on the risk assets that have been trading with QE as a
catalyst."
World stocks measured by the MSCI All-Country World Index
<.MIWD00000PUS> fell 0.91 percent and MSCI emerging market
benchmark <.MSCIEF> lost 1.63 percent.
U.S.-listed shares of Argentine stocks surged following
news that the president's husband and predecessor, Nestor
Kirchner, had died. Transportadora de Gas Del Sur S.A. <TGS.N>
soared 11 percent to $4.41 while IRSA Investments and
Representations Inc <IRS.N> added 7.4 percent to $14.95.
The December futures contract for the Nikkei 225 stock
index <0#NK:> trading in Chicago fell 30 points to 9,425.
Europe's FTSEurofirst 300 <> closed down 0.7 percent
after data showing weakness in a category of U.S. durable goods
orders and on uncertainty over the outcome of the Fed's Nov.
2-3 meeting.
U.S. Treasuries widened losses on news that sales of new
U.S. single-family homes rose more than expected in September,
while prices rose and the supply of homes on the market was the
lowest in 42 years.
Also, the government's sale of $35 billion in five-year
notes fetched lukewarm demand, pressuring government bond
prices.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was
down 21/32, with the yield at 2.7216 percent. The 2-year U.S.
Treasury note <US2YT=RR> lost 2/32, its yield at 0.4143
percent. The 30-year U.S. Treasury bond <US30YT=RR> dropped
29/32, with the yield at 4.0555 percent.
Gold prices <XAU=> fell $14.10, or 1.05 percent, to
$1325.30 an ounce as the dollar rose. Gold typically falls when
the dollar strengthens, and vice versa, as a firmer U.S.
currency curbs the metal's appeal as an alternative asset. Like
all dollar-priced commodities, it also becomes more expensive
for other currency holders.
Crude oil <CLc1> fell 58 cents, or 0.7 percent, to $81.97
per barrel.
(Additional reporting by Nick Olivari, Ellen Freilich, and
Ryan Vlastelica in New York; Editing by Dan Grebler)
