* Dollar rises from 15-month lows on rise in risk aversion
* Oil, gold retreat pressured by rise in dollar
* U.S. industrial output data weighs on markets
(Updates with U.S. markets, changes byline, dateline; previous
LONDON)
By Manuela Badawy
NEW YORK, Nov 17 (Reuters) - The U.S. dollar rebounded on
Tuesday on investors' increasing aversion to risk, driving down
world stocks from the previous day's 2009 high, as well as
commodity prices.
A weaker-than-expected U.S. industrial production report
also pressured the stock market as investors worried about the
sustainability of the economic recovery. For story on data see
[].
Investors paused selling the U.S. dollar, which hit a
15-month low on Monday, after Federal Reserve Chairman Ben
Bernanke acknowledged the dollar's slump was causing some
prices to rise but said other factors restraining inflation
were winning the day.
Bernanke's comments dulled risk appetite and caused
investors to cut bets against the dollar.
U.S. stocks fell from a 13-month high as dollar-priced raw
materials and commodity-linked stocks weighed on the index.
The Dow Jones industrial average <> was down 0.02
percent, at 10,404.77. The Standard & Poor's 500 Index <.SPX>
was down 0.21 percent, at 1,106.97, and The Nasdaq Composite
Index <> was down 0.10 percent, at 2,195.71.
The MSCI world equity index <.MIWD00000PUS> fell 0.57
percent, having hit its highest since September 2008 on Monday,
as investors stepped back from risk trades and took a breather
from an eight-month rally that has pushed the index 75 percent
higher.
DOLLAR PRESSURES COMMODITIES
A weaker dollar typically supports commodity prices because
dollar-priced contracts -- such as those for oil and gold --
become cheaper for buyers using other currencies.
Crude oil <CLc1> shed its 3 percent gains from the previous
day and gold prices <XAU=> remained strong but weakened from
record highs hit on Monday as the dollar recovered.
Meanwhile, a report showed U.S. industrial production rose
by a smaller-than-expected 0.1 percent in October as auto
manufacturers scaled back following the end of the "cash for
clunkers" government incentive program.
Investors are worried about the sustainability of the
economic recovery when stimulus spending winds down.
"All of this adds up to concern in the markets today about
the strength and durability of the recovery and will weigh on
recent gains," said Jim Awad, managing director at Zephyr
Management in New York.
WORRIES ON THE DOLLAR
The euro <EUR=> fell 0.82 percent at $1.4848 while the
dollar index <.DXY> rose 0.7 percent against a basket of major
currencies.
The Fed -- the U.S. central bank -- has kept benchmark
interest rates near zero and pumped hundreds of billions of
dollars into the financial system to counter the worst
recession in 70 years.
The dollar has been under pressure as the U.S. economy has
lagged other economies in recovering from the global crisis.
For the dollar to reverse its long-term downtrend, analysts
say China needs to take steps toward a more flexible currency
regime, or the Fed has to signal imminent rate hikes.
"Neither of those prerequisites have been fulfilled, so the
controlled grinding lower of the dollar will continue," said
Johan Javeus, strategist at SEB in Stockholm.
U.S. Treasury debt prices edged higher, pushing 30-year
bond <US30YT=RR> yields to two-week lows as a pullback in the
recent stocks rally gave safe-haven bonds a slight boost.
The benchmark 10-year Treasury note <US10YT=RR> was last up
3/32 in price for a yield of 3.32 percent versus 3.34 percent
at Monday's close.
Bonds have not been as highly correlated with stocks as
they were earlier this year. But the lofty peaks equities have
scaled recently have some investors worried about whether Wall
Street's rally can last.
The FTSEurofirst 300 <> index of top European shares
ended 0.4 percent lower at 1,030 after rising 1.5 percent on
Monday. The index is up 24 percent in 2009 and has surged 60
percent since hitting a record low in March.
Emerging stocks market <.MSCIEF> fell 0.3 percent.
Japan's Nikkei stock average <> fell 0.6 percent on
Tuesday, as Tokyo market players said a host of domestic
factors, including economic uncertainty amid renewed talk of
deflation and the sense that government initiative on this is
lacking, kept Japanese shares under pressure.
(Additional reporting by Natsuko Waki in London and Steven C.
Johnson, Edward Krudy and Burton Frierson in New York; Editing
by James Dalgleish)
