Correction - Dollar hits eight-month high on rate expectations, metals drop

Reuters
American dollar notes are displayed in this photo illustration in Johannesburg August 13, 2014. REUTERS/Siphiwe Sibeko/Files

By Caroline Valetkevitch

NEW YORK (Reuters) - The dollar rose to an eight-month high on Monday amid heightened expectations that the U.S. Federal Reserve would raise interest rates next month, driving down the prices of copper, gold and other metals.

Worries that a buoyant dollar could discourage producers from cutting supply despite weak demand weighed on base metals prices. Copper fell to its cheapest in six months before recovering, while London nickel slid to its lowest since 2003. Gold fell nearly one percent towards last week's near-six-year low.

"In the context of a market waiting for supply-side cuts, a stronger dollar is only going to weigh on the cost curve and constrain the pace at which cutbacks are made," said Nicholas Snowdon, analyst at Standard Chartered.

U.S. stocks fell slightly in afternoon trading, with utilities (.SPLRCU) pressured by rate hike expectations.

The Dow Jones industrial average (.DJI) fell 60.49 points, or 0.34 percent, to 17,763.32, the S&P 500 (.SPX) lost 5.06 points, or 0.24 percent, to 2,084.11 and the Nasdaq Composite (.IXIC) dropped 11.70 points, or 0.23 percent, to 5,093.22.

"We're coming off a very strong performance, a market that has shown tremendous resilience and a strong propensity of coming back," said Andre Bakhos, managing director at Janlyn Capital LLC in Bernardsville, New Jersey.

The healthcare sector was in focus after Pfizer (PFE.N) said it would buy Botox maker Allergan (AGN.N) in a record deal worth $160 billion.

Other world equity markets also slipped after five days of gains, while European shares ended lower as commodity-related stocks fell. An MSCI index of global stock markets fell 0.4 percent, and a broad gauge of European stocks (.FTEU3) ended down 0.3 percent.

The dollar index (.DXY), which measures the greenback against six major currencies, rose 0.4 percent, touching 100.00, an eight-month high not far from this year's peak of 100.390.

San Francisco Fed President John Williams on Saturday cited a "strong case" for raising rates when Fed policymakers meet next month, as long as U.S. economic data does not disappoint. His comments overshadowed Monday's lackluster U.S. manufacturing and housing reports.

Three-month copper (CMCU3) on the London Metal Exchange hit a low of $4,443.50 a tonne before recovering to end at $4,490, down 2 percent. LME nickel CMNI3 fell as far as $8,175 before ending down 5 percent at $8,300. Spot gold (XAU=) was 0.7 percent lower at $1,070.33 an ounce.

A measure of commodity prices hit its lowest in 13 years before bouncing back. The Thomson Reuters Core Commodity CRB index (.TRJCRB) hit its lowest since November 2002. The gauge is down more than 20 percent so far this year.

Crude oil prices rose after Saudi Arabia's pledge to work on price stability offset some worries about the global oil glut.

Benchmark Brent futures (LCOc1) were up 41 cents at $45.07 a barrel. U.S. crude's West Texas Intermediate (WTI) futures (CLc1) rose 7 cents to $41.97 a barrel.

U.S. Treasuries prices edged up, with benchmark 10-year Treasuries notes up 4/32 for a yield of 2.25 percent, according to Reuters data.

(Corrects Brent settlement price to $44.83, not $45.83, in second to last paragraph)

(Reporting by Rodrigo Campos and Caroline Valetkevitch; Additional reporting by Dion Rabouin in New York, Maytaal Angel in London and Abhiram Nandakumar in Bangalore; Editing by Nick Zieminski and Bernadette Baum)