Dollar slips, bonds rise as oil declines
Bond prices rose and the dollar eased on Friday after data showed the US economy grew last quarter but not briskly enough to alter expectations of Federal Reserve monetary easing next week.
US Treasuries and German bund futures gained after the government's estimate of gross domestic product was in line with analysts' forecasts of a 2.0 percent rise. But a bigger-than-expected jump in business inventories pointed to underlying weakness in the US economy.
Still, the GDP report took a backseat to expectations Fed policymakers at their two-day meeting ending on next Wednesday will announce new bond purchases of at least $100 billion a month to push borrowing costs lower and energize a sluggish recovery.
While the dollar index, a gauge of its performance against six major currencies, was little changed, the yen hovered close to the record peak in 1995 of 79.75 yen to the dollar.
Investors bet the Bank of Japan will notintervene to weaken the yen before the Fed's announcement next week. The dollar was down 0.62 percent at 80.50 against the yen and the Dollar Index down 0.15 percent at 77.189.
"There's big news next week and most of it is built into the market," said Richard Sichel, chief investment officer at Philadelphia Trust Co.
Forecasts for fourth-quarter and first-quarter GDP growth will be cut by up to half a percentage point because of the build-up in US inventories, said Cary Leahey, an economist at Decision Economics in New York.
"Bond prices jumped because the huge increase in inventories will have to be worked off in the fourth quarter of 2010 and the first quarter of 2011," Leahey said.
The benchmark 10-year US Treasury note was up 14/32 in price to yield 2.62 percent.
Bund futures settled up 44 ticks at 129.23.
Global stocks edged higher, with European shares postinga second consecutive monthly gain but Wall Street trading was flat after the GDP report met analysts' forecasts.
Investors also are cautious before US elections next Tuesday. A Republican takeover of the House of Representatives is seen as likely.
The FTSEurofirst 300 index of top European shares closed 0.1 percent higher at 1,086.61 points. MSCI's all-country world index rose 0.1 percent.
On Wall Street, the Dow Jones Industrial Average was up 4.73 points, or 0.04 percent, at 11,118.68. The Standard & Poor's 500 Index was up 0.29 point, or 0.02 percent, at 1,184.07. The Nasdaq Composite Index was up 8.22 points, or 0.33 percent, at 2,515.59.
As the dollar lost gains spot gold prices rose $14.92 to $1,358.20 an ounce.
Oil prices slipped. US crude for December fell 87 cents to $81.31, after edging up slightly the previous day. In London, ICE Brent fell 59 cents to $83 a barrel.
The euro was down 0.16 percent at $1.3909.
Japan's Nikkei share average fell 1.7 percent to a one-month low on signs of sluggish consumer electronics demand while the MSCI index of Asia Pacific stocks outside Japan slipped 0.3 percent.