Fresh dollar surge knocks commodities lower

By Natsuko Waki

LONDON (Reuters) - A fresh surge in the dollar drove commodities lower on Friday, knocking gold and oil prices and weighing on world stocks as evidence mounted that U.S. economic problems are spreading to the rest of the world.

The dollar struck a fresh six-month high against major currencies as shrinking economies in the euro zone and Japan contrasted with resilient growth in the United States.

This helped push oil below $114 a barrel while gold fell below $800 an ounce to a 2008 low. Other commodities from silver to vegoil tumbled as evidence of economic weakness fanned concerns that demand would weaken.

Weakening commodities had a mixed effect on equities with European and Japanese bourses gaining while emerging stocks fell back towards this week's one-year low.

"The bears are back in town. They are here in full force and doing lots of damage. It's going to be a pretty ugly Friday and Monday," said Edward Meir, MF Global analyst in Singapore, of the commodities markets.

"The root causes are many, but beyond the macroeconomic triggers, the immediate reason for the slide is the dollar."

Gold fell as low as $787.10 an ounce, its lowest since December, while silver and spot palladium lost 5 percent on the day.

Broader commodities .CRB fell towards this week's four-month low, having posted their biggest monthly loss in 10 years last month.

U.S. light crude was down 1.3 percent at $113.52 a barrel, nearly $35 below its record peak hit only last month.

GOLDMAN BACKS DOLLAR

The dollar rose as high as $1.4720 per euro a six-month high, while it hit a 22-month peak against sterling of $1.8540.

"The dollar has bottomed!" Goldman Sachs said in a note to clients.

"The rapid weakening of OECD growth outside the U.S., a clear technical break in many dollar crosses and much lower oil prices are powerful signs of improving dollar fundamentals."

Data this week showed the euro zone joined Japan to move half way into a recession -- technically defined as two successive quarters of growth contraction -- after their gross domestic product fell in the second quarter.

The MSCI main world equity index .MIWD00000PUS slipped 0.3 percent, driven by weakness in emerging stocks .MSCIEF which fell 0.7 percent.

The FTSEurofirst 300 index rose half a percent as investors took heart from falling oil and commodity prices -- which would lead to lower costs for corporates.

Emerging sovereign spreads tightened 2 basis points.

Government bonds attracted safe-haven demand, with the September Bund future FGBLU8 rising 15 ticks.

(Editing by Mike Peacock)