Dollar rally batters commodities as Fed talks of tightening

By Wayne Cole

SYDNEY (Reuters) - The dollar rose for a fifth straight session on Thursday, pressuring commodities and Asian share markets after yet another Federal Reserve official talked up the chances of more than one increase in U.S interest rates this year.

If the dollar can keep its footing <.DXY> it will notch up the first weekly gain in a month against a basket of major currencies.

The euro eased to $1.1175 >, leaving it well off last week's top of $1.1342. Sterling also slid to $1.4109 > on concerns the attacks in Brussels would aid the campaign to leave the European Union in June's "Brexit" vote.

 

Equity investors tend to dislike any hint of tighter U.S. policy and MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> slipped 0.4 percent.

Japan's Nikkei <.N225> eased 0.4 percent, while the resource-heavy Australian market <.AXJO> shed 1 percent.

On Wall Street the Dow <.DJI> ended Wednesday with a loss of 0.45 percent, while the S&P 500 <.SPX> eased 0.64 percent and the Nasdaq <.IXIC> 1.1 percent.

St. Louis Fed President James Bullard joined a chorus of officials in highlighting the risk of at least two rate hikes this year, with the first perhaps as soon as April.

Markets imply only one increase and dealers suspect an orchestrated attempt by the Fed to shift that thinking.

"There is now some speculation on April, as Bullard adds to the relatively optimistic Fed rhetoric this week,"

"The focus now turns to Fed Chair Yellen who will be speaking at the Economic Club of New York next Tuesday, which could give further clarity on the matter."

Yet for all the Fed's chatter about multiple hikes, the market seemed far from convinced. Fed fund futures <0#FF:> imply almost zero chance of a move in April and a rate of just 61.5 basis points by year end. The current effective funds rate is 37 basis points.

It was also notable that Treasury yields actually fell in response, with the 10-year > back down at 1.88 percent from a high of 1.95 percent on Wednesday.

Still, the rise in the dollar sparked profit-taking in a range of commodities from oil to gold to copper.

Oil took a further knock when data showed crude stockpiles had risen by three times the amount expected in the latest week. U.S. crude fell a further 22 cents to $39.57 a barrel, after sliding 4 percent on Wednesday. Brent lost 12 cents to $40.35.

Gold > was down at $1,222.60 an ounce, after hitting its lowest since Feb. 26 at $1,215.10.

(Reporting by Wayne Cole; Editing by Shri Navaratnam)