U.S. dollar rallies, eroding Wall Street gains

Tue Apr 7, 2015 4:45pm EDT
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By Ryan Vlastelica

NEW YORK (Reuters) - The U.S. dollar rose more than 1 percent on Tuesday, resuming a recent upward trend and weighing on Wall Street stocks as investors fretted the currency's strength would hurt multinational corporate profits.

U.S. equities had traded higher for much of the session but turned negative in the final hour of trading. European shares ended sharply higher, as did crude oil.

Recent market activity has favored risk assets, a move tied to Friday's weaker-than-expected U.S. payrolls report. While the data, along with other recent indicators, pointed to slowing U.S. growth, market participants viewed them positively, as they suggested the U.S. Federal Reserve would delay its first interest rate increase in nearly a decade.

The U.S. dollar index, which measures the greenback against a basket of currencies, rose 1.22 percent on Tuesday. Until recently, the dollar had rallied sharply on increased expectations for higher rates from the U.S. central bank, although those expectations have dimmed somewhat of late.

While a strong U.S. dollar is a sign of solid fundamentals, analysts are concerned that the currency will weigh on the earnings of U.S. multinational companies. Bank of America-Merrill Lynch on Tuesday cut its 2015 earnings estimates for the S&P 500 by $2 a share, citing the foreign exchange headwind.

"If the (dollar) move is gradual it shouldn't impact stocks too much, as companies will have a chance to hedge against the impact, but a sharp rise will have an impact," said Tony Roth, chief investment officer of Wilmington Trust in Wilmington, Delaware. It "acts as a natural brake to the U.S., and we expect it will continue to strengthen."

The Dow Jones industrial average fell 5.43 points, or 0.03 percent, to 17,875.42, the S&P 500 lost 4.29 points, or 0.21 percent, to 2,076.33 and the Nasdaq Composite dropped 7.08 points, or 0.14 percent, to 4,910.23.

The MSCI International ACWI Price Index slipped 0.16 percent.   Continued...

A general view of the Frankfurt stock exchange March 16, 2015. Germany's DAX was up 1.9 percent at 12,133, a record level on Monday.       REUTERS/Ralph Orlowski