(Adds close of U.S. markets)
* Bernanke's warning of inflation risk strengthens dollar
* Oil, gold slide on Fed chief's rare currency comments
* U.S. stocks slide on fear of Lehman faces cash crunch
By Herbert Lash
NEW YORK, June 3 (Reuters) - The dollar rose broadly and
oil fell more than $3 a barrel on Tuesday after Federal Reserve
Chairman Ben Bernanke issued a rare warning about the
inflationary risk of a weak U.S. dollar.
The stock market closed lower on renewed credit concerns
after Lehman Brothers plunged nearly 10 percent on worries the
brokerage needs to raise cash. The Wall Street Journal had
reported Lehman was considering raising as much as $4 billion.
U.S. Treasury debt prices rallied sharply, with the 30-year
bond gaining one full point on a safe haven bid. U.S. financial
shares, including those of Lehman, fell to their lowest close
since March when Bear Stearns was sold at $2 a share amid a run
on the brokerage.
Treasuries trimmed gains and U.S. stocks cut losses from
their worst levels, however, after Lehman said it has not
borrowed from the Fed since April 16, when it did so to test
the system. Lehman also said it had more than $40 billion in
liquid assets at the end of the second quarter.
"If you looked at Bear Stearns, when they were having all
those problems, the smartest guys on Wall Street were saying
the deal would be $25 to $30 (a share) and instead they came
out with $2. We're afraid now some one will come around and
offer $5 for Lehman," said Adam Tracy, director of listed
trading at Thomas Weisel Partners in San Francisco.
Before the Lehman scare, U.S. and European stocks gained
moderately as investors saw declining oil prices 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 faltering U.S. economy.
But Bernanke's highly unusual comments on the battered
dollar marked the most significant piece of news in a busy day.
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.
The dollar's weakness has helped drive commodity prices to
record highs this year by encouraging the purchase of
dollar-denominated commodities as a hedge against inflation.
Its recovery more recently has pushed steep drops in some
commodities, including oil on Tuesday.
U.S. crude settled down $3.45, or 2.7 percent, to $124.74
a barrel after earlier hitting a low of $123.87. London Brent
crude fell $3.44 to $124.58 a barrel.
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.
"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.
The benchmark 10-year U.S. Treasury note <US10YT=RR> gained
14/32 to yield 3.9 percent. The 30-year U.S. Treasury
bond<US30YT=RR> rose 22/32 to yield 4.63 percent.
The Dow Jones industrial average <> fell 100.97 points,
or 0.81 percent, at 12,402.85. The Standard & Poor's 500 Index
<.SPX> fell 8.02 points, or 0.58 percent, at 1,377.65. The
Nasdaq Composite Index <> fell 11.05 points, or 0.44
percent, at 2,480.48.
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.
The dollar rose against major currencies, with the U.S.
Dollar Index <.DXY> up 0.47 percent at 73.291, and against the
yen, the dollar <JPY=> rose 0.64 percent at 105.13.
The euro <EUR=> fell 0.53 percent at $1.5459.
Wall street
Shares of General Motors <GM.N> erased earlier gains, after
the automaker said U.S. auto sales fell 30.2 percent in May,
led by a decline in truck sales. Earlier, GM shares had risen
as much as 4 percent after it announced a reorganization plan.
Crude oil's fall helped energy-sensitive sectors like
airlines. An airline index <.XAL> rose 2.86 percent, recovering
from a recent battering as oil hit records.
Gold ended lower after slipping nearly 2 percent following
Bernanke's comments. Spot gold fell as low as $875.10 an ounce
and was at $882.90/884.10 an ounce by New York's last trade.
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)
