* Dollar rises on Fed official's QE2 comments
* World stocks up slightly, Wall Street gains
* Italian banks weigh early on European stocks
* Euro/yen hits 10-month high, euro-dollar up too
* S&P downgrades Portugal and Greece
(Updates with Treasuries auction, S&P downgrade of Portugal
and Greece, new prices)
By Barani Krishnan
NEW YORK, March 29 (Reuters) - The U.S. dollar rose on
Tuesday on speculation the Federal Reserve might curtail a
program aimed at keeping interest rates low, while U.S. stocks
rose and Treasuries prices fell.
European shares ended flat after weakness in the banking
sector. World stocks as measured by MSCI <.MIWD00000PUS> were
up 0.1 percent after slipping about 0.3 percent earlier.
U.S. Treasuries widened losses after the sale of $35
billion in five-year notes. It was the second of the Treasury's
three auctions of coupons this week, totaling $99 billion.
The dollar rose against the euro after the president of the
St. Louis Federal Reserve Bank, James Bullard, told an audience
in Prague the U.S. economy was strong enough to curtail the
Fed's $600 billion asset purchase program by some $100 billion.
For details, see [].
Standard & Poor's downgraded Greece and Portugal's ratings,
citing risks that their debt could be subordinated to any
future European bailout mechanism. The downgrades left Portugal
one notch above junk and Greece's credit-worthiness below that
of Egypt, deepening the debt woes of two of the weakest
countries in the euro zone. []
EUROPEAN BOND YIELDS
Among European bonds, Portugal's 10- and 2-year yields
jumped to euro lifetime highs and Greece's 2-year yields rose
10 basis points to 15.46 percent following the S&P downgrade.
U.S. stocks rose on strength in large-cap technology shares
after falling a day earlier on the lowest volume for 2011.
"The quarter is ending with a lot of uncertainties out
there," said Michael Shaoul, chairman of the New York-based
Marketfield Asset Management, which oversees $973 million.
"There's nothing obvious about what investors need to do in
this environment, and that's why you're seeing such low
volume," he said. "No one has any reason to recommit capital."
Wall Street remained cautious over crises in Japan and the
Middle East and north Africa.
But Amazon.com Inc <AMZN.O> was up almost 3 percent,
hovering near $174, after it introduced a service offering
remote access to music.
Cisco Systems <CSCO.O> rose more than 1.0 percent to trade
as high as $17.45 after it said it plans to buy newScale Inc
for an undisclosed amount to boost its cloud computing
services.[] []
The Dow Jones industrial average <> was up 64.48
points, or 0.5 percent, at 12,262.36. The Standard & Poor's 500
Index <.SPX> was up 5.52 points, or 0.4 percent, at 1,315.71.
The Nasdaq Composite Index <> was up 17.99 points, or 0.7
percent, at 2,748.67. []
European banking shares had pushed world stocks lower after
a surprise capital increase by an Italian bank.
The announcement by Italy's UBI Banca's <UBI.MI> of a 1
billion euro ($1.4 billion) capital hike dragged down Italian
banks on speculation that other lenders could be heading down
the same road. UBI shares fell more than 12 percent.
The FTSEurofirst 300 <> index of top European shares
closed up 0.04 percent at 1,125.94 points.
The euro hit a session low of $1.4060 on the EBS trading
platform after falling through reported bids at $1.4080. It
last traded at $1.4088 <EUR=>. Traders said reported sovereign
bids at $1.4050 could limit losses in the single currency,
however.
UNCERTAINTY FOR COMMODITIES
The dollar and euro both reached their highest levels
against the yen since March 18 when the Bank of Japan and
others intervened to stop yen gains.
The dollar rose to 82.42 yen <JPY=EBS> while the euro hit a
10-month high against the yen above 116.03 <EURJPY=R> .
In commodity markets, uncertainty over Libya drove up the
price of oil as government troops halted a rebel advance aimed
at restoring oil exports from the OPEC member.
Analysts said unrest in the Middle East was lending broad
support to oil and other commodities while Japan's nuclear
crisis posed growth worries over demand for raw materials
.
"We have two factors that are countervailing," said Harry
Tchilinguirian, analyst at BNP Paribas.
"There is a risk premium in the Middle East built in on
risk of further contagion. On the other hand we have the fact
Japan is a major component of the global supply chain, so the
potential for a price correction in the second quarter
remains."
U.S. crude oil's benchmark May contract <CLc1> was above
$104.40 a barrel. []
Gold remained under pressure after Monday's losses as the
prospect of interest rate increases undermined its appeal as an
inflation hedge. [] []
(Additional reporting by Atul Prakash, Jessica Mortimer and
Richard Leong; Editing by Kenneth Barry)
