* Dollar extends losses after release of Fed minutes
* Government debt rallies on Fed talk of purchases
* Oil pushes above $62 a barrel on U.S. inventory data
* U.S. stocks turn lower on profit-taking in financials
(Updates with close of U.S. markets)
By Herbert Lash
NEW YORK, May 20 (Reuters) - U.S. Treasury prices rose and
the dollar fell further on Wednesday after news the Federal
Reserve discussed in April increasing purchases of securities,
a move that would weaken the world's reserve currency.
U.S. stocks fell late in the session on profit-taking in
financial shares and a downward revision in the Fed's forecast
for economic growth over the next three years. For details, see
[]
Oil rose more than 3 percent to hit a six-month high over
$62 a barrel as government data showed a steep drop in U.S.
crude and gasoline inventories ahead of the U.S. summer driving
season.
Gold rose to an eight-week high above $940 an ounce as the
dollar slid and oil prices rallied, boosting the status of gold
as an alternative investment.
In Europe, stocks finished higher for a fifth straight day,
led by commodity-related shares.
Minutes from the latest Fed policy meeting in April showed
that central bank officials had discussed buying more
securities, including government debt, to help fuel a recovery
in the recessionary U.S. economy.
The Fed cut its 2009 forecast for gross domestic product
and raised its unemployment rate outlook, tempering recent
market optimism that the economy might be turning the corner.
"The key thing we are taking away from the minutes is the
commentary that some policymakers saw the need for buying more
toxic assets, and if that happens, the market is going to be
flooded with dollars," said Matt Esteve, a foreign exchange
trader at Tempus Consulting in Washington.
"That's why we are seeing this knee-jerk reaction of
traders selling the dollars versus most major currencies."
The euro <EUR=> shot up 1.11 percent at $1.3774, and the
dollar fell against a basket of major currencies. The U.S.
Dollar Index <.DXY> slipped 1.19 percent at 81.118. Against the
yen, the dollar <JPY=> was down 1.35 percent at 94.71.
U.S. Treasuries rallied after the Fed cited significant
risks to the U.S. economy, which officials said could take five
to six years or more to return to its long-run potential.
The benchmark 10-year U.S. Treasury note <US10YT=RR> rose
14/32 in price to yield 3.19 percent. The 2-year U.S. Treasury
note <US2YT=RR> added 3/32 to yield 0.83 percent.
After leading U.S. stocks higher earlier in the session,
financial stocks reversed course as investors booked profits.
Goldman Sachs <GS.N> fell 3.3 percent to $136.44, and
JPMorgan <JPM.N> down 3.5 percent to $34.55. The KBW Bank index
<.BKX> lost 2.8 percent.
Hedge fund T2 Partners LLC is selling financial stocks that
have soared since March amid expectations the fallout from the
mortgage crisis will produce more losses for banks, founder
Whitney Tilson told Reuters this week.
Technology shares also fell after Hewlett-Packard <HPQ.N>
tempered its outlook for 2009. The stock fell 5.2 percent and
was the biggest drag on the Dow.
The Dow Jones industrial average <> fell 52.81 points,
or 0.62 percent, at 8,422.04. The Standard & Poor's 500 Index
<.SPX> lost 4.66 points, or 0.51 percent, at 903.47. The Nasdaq
Composite Index <> was off 6.70 points, or 0.39 percent,
at 1,727.84.
Earlier, MSCI's main world stock index <.MIWD00000PUS> hit
245.32, a new 2009 high that reached levels last seen in
November.
The euro strengthened to its highest in more than four
months on hopes of economic recovery and after U.S. Treasury
Secretary Timothy Geithner said the financial system was
"starting to heal."
Geithner's comments were positive for risky trades as it
suggested that the financial crisis was abating.
Money flowed out of dollar-denominated deposits and back
into higher-risk assets.
European shares extended a winning streak to five days in a
choppy session. The pan-European FTSEurofirst 300 <>
index of top shares closed up 0.4 percent at 875.85 points. The
index, which slumped 45 percent in 2008, is about 35 percent
higher from its lifetime low on March 9.
Crude rose after the Energy Information Administration said
U.S. crude oil and gasoline stockpiles fell sharply last week.
[]
U.S. crude <CLc1> rose $1.94 to settle at $62.04 a barrel,
before trading up to a six-month high of $62.26 in
post-settlement activity. London Brent <LCOc1> traded up $1.67
to $60.59 a barrel.
U.S. gold futures for June delivery <GCM9> settled up
$10.70 at $937.40 an ounce in New York.
"Oil has reached the $60 mark. That is obviously a
bellwether and a key for commodities in general, so gold is
taking a cue from the strength in oil," said Brian Hicks, a
portfolio manager at U.S. Global Investors.
The weakness of the greenback, which makes gold and other
dollar-denominated commodities cheaper for non-U.S. investors,
sparked technical buying in the yellow metal, traders said.
The MSCI index of Asia Pacific stocks outside Japan
<.MIAPJ0000PUS> was nearly unchanged while the Nikkei share
average <> edged up 0.6 percent despite the worst-ever
contraction in Japan's economy in the first quarter.
(To read Reuters Global Investing Blog click on
http://blogs.reuters.com/globalinvesting. For the MacroScope
Blog click on http://blogs.reuters.com/macroscope; For Hedge
Fund Blog click on http://blogs.reuters.com/hedgehub)
(Reporting by Chuck Mikolajczak, Gertrude Chavez-Dreyfuss and
Pedro Nicolaci da Costa in New York; Joanne Frearson, Chris
Baldwin, Catherine Bosley and Jan Harvey in London; writing by
Herbert Lash; Editing by Kenneth Barry)
