* US dollar index hits 3-yr trough, approaches record low
* Gold jumps to record high, silver at 31-year peak
* Strong U.S., European corporate earnings boost equities
* Disappointing U.S. data support Treasury debt prices
(Updates market action, adds fresh quote in paragraph 10)
By Richard Leong
NEW YORK (Reuters) - The U.S. dollar sagged to a
three-year low against major currencies Thursday and gold
surged to a new high as investors flocked to investments that
are less reliant on the U.S. economy.
The negative sentiment on the dollar intensified this week
on signs of a slowing U.S. economy and Standard & Poor's
warning Monday that it might take away the United States'
coveted AAA credit rating within two years if Washington fails
to achieve a plan to slash its $14 trillion debt load.
The dollar has already been bogged down by the Federal
Reserve's near-zero interest rate policy and overseas central
banks' ongoing diversification from the U.S. currency.
"If you look at all these big picture things, there's no
reason to buy dollars right now," said Ronald Simpson, director
of currency research at Action Economics in Tampa, Florida.
Upbeat U.S. and European corporate earnings propelled world
stocks to a 33-month high. Several U.S. bellwether stocks
jumped after strong earnings but many of those companies have
significant sales outside the United States, which is showing
signs of slowing again due to weak job growth and rising oil
"The stock market is still focused on the strong corporate
earnings," said Randy Billhardt, head of institutional sales
and trading MLV & Co. in New York. "It has been able to shrug
off a lot of bad news."
Emboldened investors are now piling back into riskier
assets, though some analysts advised caution as worries about
the euro zone debt crisis and problems in the supply chain
following the Japanese earthquake stayed in the background.
Expectations the Federal Reserve will keep U.S. interest
rates at near zero for the foreseeable future, even as other
major central banks raise rates or are about to tighten, have
pressured in the dollar in recent weeks.
With little chance of the Fed raising interest rates this
year, the dollar index was down by 0.4 percent to 74.080
after falling to 73.735, its lowest level since August 2008.
Light holiday trading volume magnified foreign central banks'
gradual reduction of the U.S. dollar from their reserves.
Technical charts suggested the index could move towards a
record low of 70.698 hit in 2008.
STOCKS, GOLD SHINE
The weak greenback and inflation concerns raised the appeal
of gold. Spot gold reached another record high at
$1,508.75 an ounce, while spot silver soared to a
31-year high at $46.24 an ounce.
"People want hard assets and that's what people are
comfortable with," MLV's Billhardt said.
In addition to precious metals, investors also channeled
funds into stocks.
The MSCI All-Country World Index rose for a
third straight day, touching a high of 350.82, a level last
seen in July 2008.
Asian shares led the rally, climbing to their highest since
January 2008. The MSCI Asia ex-Japan index
gained 1.3 percent, while Japan's Nikkei closed up 0.8
The FTSEurofirst 300 index of top European shares
was up 0.5 percent, while Wall Street stocks
were 0.4 percent higher.
Oil prices rebounded from earlier losses linked to weak
data on U.S. jobs and regional manufacturing. ICE Brent June
crude was up 5 cents at $123.93 a barrel.
Thursday's disappointing U.S. economic reports supported
Treasury prices and reinforced expectations that the U.S.
central bank will pledge to keep interest rates low well into
2012 after its policy meeting next week.
The weaker outlook also reduced investor expectations on
U.S. inflation. The five-year breakeven rate, which is the
yield gap between five-year Treasury Inflation-Protected
Securities and regular five-year government debt, fell to 2.31
percent, down 0.03 percentage point from late Wednesday.
(Additional reporting by Wanfeng Zhou, Karen Brettell,
Frank Tang and Robert Gibbons)
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