GLOBAL MARKETS-Dollar hits six-month high, shares rise

Mon Aug 11, 2008 4:09am EDT

By Jeremy Gaunt, European Investment Correspondent

LONDON, Aug 11 (Reuters) - The dollar hit a six-month high against major currencies on Monday, driven by concerns that U.S. economic problems are spreading to the rest of the world, while equities rose against a background of lower oil prices.

Europe's FTSEurofirst 300 share index was at its highest level since late June and Japan's Nikkei .N225 gained nearly 2 percent.

Military conflict between Russia and Georgia ignited fears that energy exports from the Caspian region may be disrupted in the longer term, nudging oil prices up. But they remained around $116 a barrel, well below recent highs.

The fighting in Georgia and concerns about the global economy kept emerging market stocks .MSCIEF near Friday's one-year low.

The dollar vaulted to a six-month high against its major currency basket and the euro fell further below $1.50 after suffering its biggest one-day drop since January 2001 on Friday.

"The dollar has been strengthening due to a deterioration in economic data outside of the U.S. coupled with low oil prices," said Ashley Davies, currency strategist with UBS in Singapore.

Investors were also caught off guard by the European Central Bank's acknowledgment last week that economic growth had slowed more than it expected.

The dollar index, which measures the U.S. currency against a basket of six currencies, punched to a six-month high of 76.192 before pulling back to 75.914 .DXY.

Crude oil CLc1 was up $1.51 at $116.71 a barrel, rebounding from the previous session's $5 decline on concern that fighting between Russia and Georgia could further disrupt energy exports from the Caspian region.

The Baku-Tbilisi-Ceyhan (BTC) oil pipeline, which passes through Georgia, is already closed after an explosion on Turkish territory before conflict began over the South Ossetia region.

But analysts said oil's gain was tempered by the rising U.S. dollar. Oil has shed about $31, or 21 percent, since its peak of over $147.27 struck on July 11, on concerns of a slowdown in demand.

SHARES RISE

European stocks hit their highest in more than 6 weeks, with automakers rising on the euro's weakness which helps exports.

The FTSEurofirst 300 index was up 0.8 percent having hit its highest level since June 26.

"The key elements of this equities rebound are the drop in both the euro and oil prices," said Marc Touati, economist at Global Equities in Paris.

Earlier, Japan's benchmark Nikkei .N225 gained 262.50 points or 1.99 percent, to 13,430.91, its highest close since July 24. The broader Topix gained 1.6 percent to 1,280.00.

Euro zone government bonds held steady. Two-year yields were 4.070 percent while 10-year yields were at 4.263 percent .