U.S. dollar rebounds, commodities sag in soft trade

By Herbert Lash

NEW YORK (Reuters) - The U.S. dollar recovered some of this week's losses on Friday, pressuring oil and other commodities, while the Dow edged into positive territory for the first time this year since January in lackluster trade.

U.S. Treasury debt rallied, extending a retreat in benchmark yields from eight-month highs, as investors breathed a sigh of relief after the U.S. government this week sold $65 billion in new debt with relative ease.

The dollar rose broadly, rebounding from the week's steep sell-off, as demand for the euro fell after data showed a 21.6 percent plunge in euro zone industrial production in April -- a new record drop in output in the 16-country area.

Investors had bet on an end to recession for most of the week, spurring many commodity prices to eight-month highs and lifting global stocks on hopes economic recovery would boost demand, before some profit-taking on Friday.

"We're seeing a classic correction," said Brown Brothers Harriman currency strategist Meg Browne. "The top performers on the week are the worst performers today, suggesting the move is largely corrective in nature and will not be sustained."

Oil fell to almost $72 a barrel, a day after reaching a near eight-month high on Thursday, while gold slid to a three-week low below $940 an ounce. Industrial metals also pulled back from this week's eight-month highs.

Copper, used largely in construction, has gained more than 70 percent this year and about 10 percent so far in June on stronger economic data and hopes of increasing demand.

The Reuters-Jefferies CRB index .CRB, which tracks the price of futures contracts of raw materials across 19 mostly U.S. traded markets, fell 1.5 percent.