Dollar surge knocks down commodities, stocks rise

By Herbert Lash

NEW YORK (Reuters) - A growing perception among investors that growth in Europe is slowing just as a U.S. recovery begins drove the dollar higher and pushed oil prices to three-month lows on Friday, lifting both U.S. and European shares.

The dollar climbed to a six-month high against the euro, knocking gold and other metals prices down, along with oil, and bolstering the outlook for economic growth and profits among U.S. equity investors.

Oil hit a more than three-month low at $111.34 on the stronger dollar and a view that demand in industrialized nations is waning. Gold tumbled below $800 an ounce, hitting its lowest price since last November, while silver sank nearly 10 percent and other precious metals also plummeted.

The drop in commodities prices raised hopes on Wall Street of a consumer spending recovery, although the slide in crude prices pushed down shares of materials and energy-related companies.

Big manufacturers and airlines, whose earnings suffer when fuel costs rise, gained. They also got a boost from a surprise reading of manufacturing activity in New York state in August.

"The energy components and the commodity components are weighing on the averages as oil and gold fall. The stronger dollar is a negative anchor on anything commodity-related," said Michael James, senior trader at regional investment bank Wedbush Morgan in Los Angeles.

"But that's counterbalanced by a significant outperformance of the retailers, which are a continued beneficiary of lower oil," James said.

Shares of consumer-oriented companies such as Procter & Gamble (PG.N) and Wal-Mart Stores (WMT.N) did well. P&G rose 2.7 percent to $71.60, and Wal-Mart, the world's biggest retailer, jumped 2.2 percent to $59.37, as investors bet the sales environment will improve with lower oil prices.