LONDON -- The dollar hit record lows against the euro and a basket of currencies on Tuesday following renewed concerns about the impact of the credit crunch on the U.S. economy, but shares rebounded after falls the previous day.
Oil prices leapt as the weak dollar and tight fuel stocks prompted speculative buying and gold hit a 28-year peak.
Wall Street looked set to open stronger, with the Dow Jones future up 0.48 percent.
Risky assets took a battering on Monday after a shock warning from U.S. banking giant Citi on billions of dollars of loan losses reignited credit concerns and worries about the health of the U.S. economy.
In Asia and Europe on Tuesday, investors scooped up recently beaten-down shares but the dollar came under renewed pressure due to expectations that the U.S. Federal Reserve might cut interest rates again, lowering the yield the currency offers.
"We had quite good data recently in the U.S., with non-farm payrolls and ISM services but we think this is not enough to trigger a lasting recovery in the greenback," said Carole Laulhere, currency strategist at Societe Generale in Paris.
"We already know that U.S. GDP in the fourth quarter will mark a slowdown and at the same time Fed officials are warning that the subprime crisis may last a bit longer. So we may post new highs in euro/dollar ... around $1.47 in coming weeks."
The dollar fell to a record low of $1.4556 per euro , bringing its losses this year to around 10 percent. It was down 0.4 percent on the day against a basket of six major currencies.
Interest rate markets see a more than 60 percent chance of another Federal Reserve interest rate cut in December.
"The Fed seems to be underestimating the impact of the financial market turmoil on the domestic economy. Financial institutions' marked write-downs suggest that corporate lending activity has potential to tighten significantly in the coming months," BNP Paribas said in a note to clients.
BARGAIN HUNTING
The FTSEurofirst 300 index was up 0.44 percent, helped by gains in mining shares, but with financials again weaker as investors treated the sector with suspicion following the Citi announcement.
MSCI main world equity index was up 0.47 percent, after hitting a 1-1/2 week low on Monday.
The iTraxx Crossover index , mostly-widely watched indicator for European credit market sentiment, tightened 11 basis points to 345 bps, having widened from below 230 in the past few weeks. It was a blowout in this index in August which triggered credit concerns.
The December Bund future was down 0.08 percent.
Emerging sovereign spreads tightened 5 basis points, while stocks were up 1.0 percent, supported by firmer commodity prices.
U.S. light crude rose $1.92 to $95.90 a barrel, climbing back towards the record high above $96 set last week.
Gold surged to $820 an ounce, its highest level in 28 years, drawing support from strong oil prices, dollar weakness and safe-haven buying.
© Reuters 2007.
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