GLOBAL MARKETS-Stronger dollar hurts stocks, commodities

Mon Oct 31, 2011 4:18pm GMT

* Dollar gains 3 pct vs yen after Japanese intervention

* MF Global goes bankrupt on worries about European bets

* U.S. crude futures shed 0.8 pct; gold falls over 1 pct

* German Bunds, U.S. Treasuries rise on safe-haven bids (Recasts, updates market action)

By Richard Leong

NEW YORK, Oct 31 (Reuters) - World equities fell on Monday as commodity shares sank on a stronger dollar following Japan's intervention to weaken the yen.

Rising doubts about the euro zone's plan to stem its debt crisis also weighed on investor sentiment.

Worries about the European debt crisis took a toll on MF Global MF.N. The U.S. futures broker, whose heavy bet on the region's debt sent its shares plummeting in recent days, filed for bankruptcy on Monday. For more, see [ID:nN1E79U0DF]

U.S. crude oil futures CLc1 shed 1.4 percent as the greenback jumped to a three-month high against the yen, making dollar-priced commodities more expensive for investors holding other currencies.

Lower metal prices from a firmer dollar hurt mining stocks, while banking shares succumbed to selling on renewed doubts over European leaders' plan to prevent their sovereign debt problem from spiraling into a global financial crisis.

"After a solid month of gains, the (higher) dollar is giving traders a reason to shy from the risk trade and take some profits," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.

Japan sold the yen for the second time in less than three months, saying it intervened to counter speculative moves that were hurting the world's third-biggest economy. Traders estimated the Bank of Japan could have purchased $65 billion to $75 billion against its currency. For more, see [ID:nL4E7LV0D4]

The dollar, which had fallen to a record low of 75.31 yen JPY= earlier in Asian trade, rose more than 4 percent to as high as 79.55 yen. It was last up 2.9 percent at 78.02 yen, with traders saying more intervention would likely be needed for a more durable impact.

The euro gave up most of last week's gains on the dollar's advance. It was last down 1.4 percent at $1.3954 EUR=, retreating further from a seven-week high around $1.4247 last Thursday on news of the euro zone's debt-rescue plan.

The single currency still looked set to end the month up nearly 5 percent for its best monthly performance in just over a year. But speculation about an interest rate cut on Thursday by the European Central Bank could limit its gains for now.

The dollar might also come under pressure with Federal Reserve Chairman Ben Bernanke likely to repeat his worries about the slow pace of economic recovery when the Fed ends its two-day policy meeting on Wednesday. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ TIMELINE-Japan battles strong yen: [ID:nL3E7LS0AB] For stories from Europe: [nTOPEURO] Euro zone debt crisis in graphics r.reuters.com/hyb65p Euro zone government bond spreads r.reuters.com/kus82s ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

EUROPEAN DEBT PLAN DOUBTS

Japan told the head of Europe's bailout fund on Monday that it would continue to buy its bonds. But like fellow potential investor China, it did not commit to putting cash into a mooted special purpose vehicle to enhance the rescue fund's firepower. [ID:nL5E7LV0G5]

With the decline in the euro, equities gave back some of last week's gains.

"Last week we saw a huge rise in equity markets largely on the revelation of a structure of a plan, with no detail on the funding," said Jeremy Batstone-Carr, a strategist at Charles Stanley in London.

The MSCI world equity index .MIWD00000PUS dropped 2 percent, pulling back from its highest levels in nearly three months hit last week.

U.S. stocks fell as the spike in the U.S. dollar weighed on commodity prices and dried up bids on other risky assets.

Around noon (1600 GMT), the Dow Jones industrial average .DJI was down 150.46 points, or 1.23 percent, at 12,080.65. The Standard & Poor's 500 Index .SPX was down 17.04 points, or 1.33 percent, at 1,268.05. The Nasdaq Composite Index .IXIC was down 29.67 points, or 1.08 percent, at 2,707.48.

The pan-European FTSEurofirst 300 index .FTEU3 fell 1.4 percent after rising 4.1 percent last week, while emerging stocks .MSCIEF slipped 1.5 percent.

The stock market sell-off rekindled bids for bonds. U.S. and German government debt prices advanced as peripheral euro zone government debt came under renewed pressure.

Italian 10-year government bond yields climbed back above 6 percent to levels last seen in August before the ECB stepped in to buy Spanish and Italian debt in the secondary market.

German Bund futures FGBLc1 jumped 1.6 points to 135.27, while the U.S. 30-year Treasury bond US30YT=RR rallied nearly 3 points in price to yield 3.24 percent.

Spot gold prices fell more than 1 percent as the spike in the dollar spooked precious metals investors. Spot gold XAU= was last down 0.9 percent at $1,725.99 an ounce, halving its earlier decline. (Additional reporting by Rodrigo Campos in New York; Emelia Sithole-Matarise, Jessica Mortimer, Kirsten Donovan and Brian Gorman in London; Editing by Dan Grebler)