(Recasts with U.S. markets, adds byline; dateline previous
LONDON)
* Bernanke's warning of inflation risk strengthens dollar
* Oil, gold slide on Fed chief's rare currency comments
* U.S., European stocks rise on stronger economic data
* Risk aversion, credit jitters still a dominant theme
By Herbert Lash
NEW YORK, June 3 (Reuters) - The dollar rose broadly and
government debt, gold and oil prices dropped on Tuesday after
Federal Reserve Chairman Ben Bernanke issued a rare warning
about the inflationary risk of a weak U.S. currency.
U.S. and European stocks gained moderately as investors saw
the decline in oil to below $126 a barrel as beneficial to the
economy. Equities also drew strength from data showing a
surprise rise in new orders at American factories in April,
easing concerns over the health of the U.S. economy.
The dollar extended gains against major currencies after
the U.S. factory data showed new orders, which economists had
expected to fall, rose a more-than-expected 1.1 percent,
But the real market mover was Bernanke's highly unusual
comments on the battered dollar. Federal Reserve officials
usually defer to the U.S. Treasury on the dollar's value.
The euro fell to nearly a three-week low versus the dollar
at $1.5432 as Bernanke said the Fed and Treasury were carefully
monitoring currency markets, suggesting growing concern among
U.S. officials about the dollar's slide and its inflation
link.
"Bernanke seems more concerned about inflation than growth
and for the first time that I remember he brings the weak
dollar into the macro picture by linking rising import costs --
inflationary -- to the front page," said Tom Sowanick, chief
investment officer at Clearbrook Financial LLC in Princeton,
New Jersey.
A factor driving commodity markets this year has been the
U.S. currency's weakness, which encourages the buying of
dollar-denominated commodities as an inflation hedge.
Bernanke, who spoke in Washington via satellite to a
conference on monetary policy in Barcelona, also indicated the
Fed's interest rate cutting campaign was at an end, which
tempered demand for safe-haven U.S. government debt.
The benchmark 10-year U.S. Treasury note <US10YT=RR> fell
6/32 to yield 3.99 percent. The 30-year U.S. Treasury
bond<US30YT=RR> fell 8/32 to yield at 4.69 percent.
The dollar rose against a basket of major currencies, with
the U.S. Dollar Index <.DXY> up 0.54 percent at 73.342.
Against the yen, the dollar <JPY=> rose 0.73 percent at
105.22.
"Bernanke is still leaving the impression that he's done
easing," said Rick Klingman, managing director of Treasury
trading at BNP Paribas in New York.
European stocks trimmed some of the previous session's
losses to end higher as Royal Bank of Scotland <RBS.L> and UBS
<UBS.VX> recovered.
The FTSEurofirst 300 <> index of top European shares
rose 0.75 percent to 1,329.07 points.
RBS soared 8.3 percent on talk that activist investor TCI
may be building a stake and as selling pressure eased at the
end of a rights issue trading period nears, dealers said. RBS
declined to comment.
UBS gained 3.8 percent, rebounding from recent losses,
helped by comments from rating agency Standard & Poor's.
Despite their rally, other banks suffered fresh losses on
worries about the credit crisis.
"Investors are concerned that the European housing market
bubble could burst. House prices have come down in the U.S.,
but they are just starting to fall in Europe," said Francois
Chevallier, strategist at VP Finance in Paris.
U.S. stocks rose, helped by General Motor's announcement it
would limit its reliance on gas-guzzling trucks and SUVs. GM
<GM.N> shares rose 3.6 percent to $18.06.
Before 1 p.m., the Dow Jones industrial average <> was
down 6.44 points, or 0.05 percent, at 12,497.38. The Standard &
Poor's 500 Index <.SPX> was up 3.59 points, or 0.26 percent, at
1,389.26. The Nasdaq Composite Index <> was up 11.09
points, or 0.45 percent, at 2,502.62.
Shares of No. 1 retailer Wal-Mart <WMT.N> rose 1.4 percent
to $57.98 as oil fell, easing concerns about the consumer.
Fuel-sensitive airline stocks also rose, with UAL Corp
<UAUA.O>, operator of United Airlines, up 4.7 percent to $8.25
and Continental Airlines <CAL.N> up 3.5 percent to $14.36.
U.S. light sweet crude oil <CLc1> fell $1.91 to $125.85.
Spot gold prices <XAU=> fell $7.05 to $882.75.
Earlier in Asia, stocks fell led by financial firms and
exporters, on renewed credit worries that roiled U.S. and
European markets on Monday.
Japan's Nikkei share average <> ended down 1.6
percent, snapping a three-day winning streak.
The MSCI index of shares in the Asia-Pacific region outside
Japan <.MIAPJ0000PUS> was down 1.7 percent.
(Reporting by Richard Leong, Gertrude Chavez-Dreyfuss and
Walker Simon in New York; Jan Harvey and Alastair Sharp in
London and Blaise Robinson in Paris)
(Reporting by Herbert Lash Editing by Richard Satran)
