* Wall Street dips ahead of Fed meeting, U.S. elections
* Dollar slips after tepid U.S. GDP report
* Oil falls to $81 a barrel on economic concerns
* Bonds rise as GDP data hints of economic weakness ahead
(Updates with close of U.S. markets)
By Herbert Lash
NEW YORK, Oct 29 (Reuters) - Bond prices jumped and the
dollar eased on Friday after data showed the U.S. economy grew
in the third quarter but not briskly enough to alter
expectations of Federal Reserve monetary easing next week.
U.S. Treasuries gained after the government's estimate of
gross domestic product was in line with analysts' forecasts of
a 2.0 percent rise. But a bigger-than-expected gain in business
inventories pointed to underlying weakness in the U.S. economy.
For details see: []
Trading was subdued in anticipation of a Fed announcement
next Wednesday and the outcome of U.S. elections on Tuesday,
with polls indicating Republicans will wrest control of the
U.S. House of Representatives. []
Treasuries also rallied as the GDP reported showed core
inflation under 1 percent, which supported expectations the Fed
would try to support the economy by buying assets.
The 30-year bond <US30YT=RR> outperformed shorter
maturities, gaining 38/32 in price to yield 3.99 percent. The
benchmark 10-year note <US10YT=RR> rose 18/32 in price to yield
2.60 percent.
"We're going to be in a prolonged period of relatively low
interest rates," said James Sarni, managing principal and
senior portfolio manager at Los Angeles-based Payden & Rygel,
with $55 billion in assets under management.
Fed policymakers are expected to announce new bond
purchases to push borrowing costs lower and energize a sluggish
recovery when their two-day meeting ends on Wednesday. A recent
Reuters poll of economists found they expected the Fed to buy
between $80 billion and $100 billion a month. [].
The dollar index, a gauge of its performance against six
major currencies, edged lower while the Japanese yen hovered
near its record peak in 1995 of 79.75 yen to the dollar.
Investors bet the Bank of Japan will not intervene to
weaken the yen before the Fed's announcement next week. The
dollar <JPY=> slipped 0.65 percent at 80.47 against the yen and
the Dollar Index <.DXY> was down 0.18 percent at 77.17.
ANEMIC U.S. GROWTH
Global stocks edged higher, with European shares posting a
second consecutive monthly gain, but Wall Street trading was
flat after the GDP report met analysts' forecasts.
MSCI's all-country world index <.MIWD00000PUS> rose 0.1
percent.
Investors are betting volatility will rise and have hedged
against unexpected outcomes from the Fed meeting and the
elections. The CBOE Volatility Index <.VIX> rose 13.1 percent
for the week.
"There's no getting around how big of a week next week is,
and it could be an inflection point either up or down," said
Max Bublitz, chief investment strategist at SCM Advisors in San
Francisco.
The Dow Jones industrial average <> gained 4.54 points,
or 0.04 percent, at 11,118.49. The Standard & Poor's 500 Index
<.SPX> slid 0.52 point, or 0.04 percent, at 1,183.26. The
Nasdaq Composite Index <> was up 0.04 point at 2,507.41.
Gold rose 1 percent, setting a 10-day high, as the weaker
dollar prompted investors to buy ahead of the Fed meeting.
News that security officials in Britain and Dubai
intercepted parcel bombs being sent from Yemen to the United
States aboard cargo flights shook investors, also prompting gold buying. []
U.S. gold futures for December delivery <GCZ0> settled up
$15.10 at $1,357.60.
Oil prices fell on the tepid U.S. economic data, while
end-of-month positioning and profit-taking, along with the
expiration on Friday of U.S. November refined oil products
contracts, also were cited as factors.
U.S. crude for December <CLc1> delivery settled down $1.08
at $81.10 a barrel. But oil posted its second straight monthly
gain and the first monthly close above $80 a barrel since
April.
In London, ICE Brent December crude <LCOc1> settled down 44
cents at $83.59 a barrel.
The euro <EUR=> was down 0.06 percent at $1.3923.
Japan's Nikkei share average <> fell 1.7 percent to a
one-month low while the MSCI index of Asia Pacific stocks
outside Japan slipped 0.3 percent <.MIAPJ0000PUS>.
(Reporting by Leah Schnurr, Nick Olivari, Ellen Freilich in
New York; Lucia Mutikani in Washington; Emma Farge, Isabel
Coles and Jan Harvey in London; Blaise Robinson in Paris;
Writing by Herbert Lash; Editing by Kenneth Barry)
