* Bernanke says U.S. economy improving, but faces headwinds
* Dollar retreats from 5-week high after Bernanke remarks
* Bonds post modest gains on view Fed to keep rates low
* Oil slips on growing inventories, Bernanke economic view
(Updates with close of U.S. markets)
By Herbert Lash
NEW YORK, Dec 7 (Reuters) - The dollar retreated from a
five-week high and stocks edged lower on Monday after Federal
Reserve Chairman Ben Bernanke doused speculation the Fed would
raise interest rates soon, saying the economy remains fragile.
While Bernanke acknowledged the U.S. economy has improved,
he said the jobless rate may remain elevated for some time. The
remarks deflated market perceptions that last week's strong
jobs data would lead the U.S. central bank to raise rates. For
details, see: []
Gold prices cut losses to trade slightly lower after
Bernanke's comments, while oil fell 2 percent to settle below
$74 a barrel as low demand for crude in the wake of the
economic downturn continues to pressure prices. []
[]
U.S. Treasury prices edged higher as investors ventured
back into the market following Friday's sell-off, lured in part
by the Fed chief's remarks in a speech at the Economic Club in
Washington. []
Bernanke said he sees an "extended period" of low rates.
"Bernanke is emphasizing the weakness and the downside to
the U.S. economy," said Brian Dolan, chief currency strategist,
at Forex.com in Bedminster, New Jersey. "Therefore, he's
postponing interest rate hike expectations. He left a very
clear impression that rates will remain on hold."
Major indexes reversed earlier gains and drifted toward
session lows as investors assessed Bernanke's speech, which had
temporarily lifted the market.
Some investors pared positions after Bernanke said the
United States faces formidable headwinds, including tight
credit conditions that have persisted despite the Fed's efforts
to foster economic growth.
"Bernanke's comments were not sufficient to get the risk
trade back on," said Stephen Massocca, managing director at
Wedbush Morgan in San Francisco.
"People need to see some real negative economic news to
believe that the Fed will keep interest rates on hold."
The Dow Jones industrial average <> was up 1.21 points,
or 0.01 percent, at 10,390.11. The Standard & Poor's 500 Index
<.SPX> was down 2.73 points, or 0.25 percent, at 1,103.25. The
Nasdaq Composite Index <> was down 4.74 points, or 0.22
percent, at 2,189.61.
Increased oil and product inventories have climbed in the
United States as the downturn has depressed demand, helping
push crude lower.
NYMEX crude for January delivery <CLc1> settled at $73.93,
down $1.54. Brent crude <LCOc1> settled at $76.43, down $1.09.
"Despite the good jobs numbers, crude had some significant
drags on it in terms of supplies, refinery utilization and
overall economic activity. That's what is continuing to weigh,"
said John Kilduff, partner of Round Earth Capital.
Year-end repatriation flows have been boosting the dollar,
analysts said, and there may be more of that ahead. Data last
week showed speculators had increased bets versus the dollar in
the week ended Dec. 1 the most since at least June 2008, CFTC
data showed on Friday. []
The dollar was down against a basket of major currencies,
with the U.S. Dollar Index <.DXY> down 0.18 percent at 75.774.
The euro <EUR=> was down 0.22 percent at $1.4818. Against
the yen, the dollar <JPY=> was down 1.03 percent at 89.50.
U.S. February gold futures <GCG0> settled down $5.50 at
$1,164 an ounce in New York. Gold futures posted their biggest
two-session percentage loss since October 2008.
Bonds yields, which move inversely to prices, retreated
from three-week highs ahead of three Treasury auctions this
week, the first of which is set for Tuesday.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was up
12/32 in price to yield 3.43 percent. The 2-year U.S. Treasury
note <US2YT=RR> was up 5/32 in price to yield 0.77 percent.
In Europe, the FTSEurofirst 300 <> index of top
regional shares provisionally closed down 0.5 percent at
1,020.61 points.
Earlier in Asia, the MSCI index of Asia Pacific stocks
traded outside Japan <.MIAPJ0000PUS>, which has rallied 66
percent this year, was little changed. Japan's Nikkei index
<> jumped 1.5 percent to a six-week closing high.
(Reporting by Angela Moon, Gertrude Chavez-Dreyfuss, Rebekah
Kebede, Emily Flitter and Frank Tang in New York; Joanne
Frearson, Emelia Sithole-Matarise and Chris Baldwin in London;
writing by Herbert Lash; Editing by Andrew Hay)
