The U.S. dollar gained, retracing the week’s losses, as the durables goods report for July eroded risk appetite and prompted investors to seek shelter in the safe-haven greenback.

Orders for long-lasting manufactured goods registered the biggest advance since July 2007, but excluding transportation goods, orders for durables were slightly below expectations.

Slippage among global stocks that climbed to 10-month highs this week boosted money flows into less risky assets, such as European government bonds, which also gained from some modest month-end buying, traders said.

Economic data in Europe showed further signs of recovery, as did a report showing U.S. new home sales jumped in July to their fastest pace in 10 months.

But a key measure of U.S. business demand — nondefense capital goods, excluding aircraft — fell, reminding investors that the U.S. economy still faces huge challenges as it tries to emerge from deep recession.

Investors in equity markets took profits on a recent run-up in prices, and key commodity prices, such as copper, fell as the U.S. data cast doubt over the speed of economic recovery.

For example, the MSCI all-country world index rose for six straight session through Tuesday, gaining 5.3 percent over the stretch. The index was down 0.5 percent on Wednesday, but still up about 4 percent in August.

“The market has come a long way, and the economics are still supportive,” said Georgina Taylor, an equity strategist at Legal & General Investment Management.

“We’re just seeing a little profit taking. Nothing has been derailed. Housing data is improving. The only area of concern is consumer spending.”

In Britain, retreating mining and oil stocks outweighed modest gains from defensive pharmaceuticals, while energy shares were the biggest drag on a leading European index.

The pan-European FTSEurofirst 300 <.FTEU3> index of top shares fell 0.5 percent to close at 973.92. The index is still up more than 50 percent from its lifetime low of March 9.

U.S. stocks seesawed after market sell-offs on Monday and Tuesday led investors to turn skittish.

“Given how extended we are, and relatively overbought, sentiment is going to drive the market’s direction much more than any economic news, at least in the short term,” said Michael James, senior trader at Wedbush Morgan in Los Angeles.

Shortly after 1 p.m., the Dow Jones industrial average <.DJI> was down 4.24 points, or 0.04 percent, at 9,535.05. The Standard & Poor’s 500 Index <.SPX> was down 1.74 points, or 0.17 percent, at 1,026.26. The Nasdaq Composite Index <.IXIC> was down 6.60 points, or 0.33 percent, at 2,017.63.

Oil pared early gains to drop to almost $71 a barrel, extending losses from the previous session, on the rise in U.S. stockpiles of crude.

The U.S. Energy Information Administration (EIA), the statistical arm of the Department of Energy, reported on Wednesday that crude stocks in the world’s largest energy consumer rose by 200,000 barrels last week.

U.S. crude for October was down $1.00 at $71.05 a barrel, after falling $2.32 on Tuesday.

Brent crude fell 61 cents to $71.21 a barrel after losing $2.44 the previous day.

U.S. government debt prices fell. The benchmark 10-year note was down 4/32 in price to yield 3.45 percent.

Gold eased as the dollar recovered losses against the euro.

U.S. gold futures for December delivery in New York were down $1.00 at $945 an ounce.

The ICE Futures’ dollar index <.DXY> rose 0.6 percent to 78.723. The euro fell about 0.4 percent to $1.4235 .

Japan’s Nikkei share average closed up 1.4 percent <.N225> to a fresh 10-month high, while the MSCI index of Asia Pacific stocks traded outside Japan rose 0.3 percent.

Aug 26 (Reuters)

But an early rally in U.S. stocks faded about midday in New York after Treasuries rose as investors swooped in to take advantage of sharp losses on Friday.

Oil rose to a 10-month high near $75 a barrel and other commodities also surged as optimism that major economies were pulling out of recession drove hopes of rebounding demand. .

Global stocks as measured by MSCI’s all-country world index <.MIWD00000PUS> rose 1.2 percent and was on track for a fifth straight session of gains.

The yen fell while the U.S. dollar slid against commodity currencies, such as the Australian and New Zealand dollars, as investors became more comfortable with riskier trades given the upbeat assessment of the world economy.

“Economic data is in favor of a stronger recovery than expected. We can be quite bullish on risky assets,” said Romain Boscher, head of equity management at Groupama Asset Management.

Euro zone industrial new orders in June rebounded 3.1 percent month-on-month, or more than expected, the European Union statistics office Eurostat said.

In the United States, economic activity improved again in July from extremely weak levels earlier this year, suggesting the recession is waning, a report from the Federal Reserve Bank of Chicago showed.

In addition, China’s latest data for July indicated that while growth was moderating after a strong second quarter, the recovery remained on track to achieve the government’s goal of 8 percent growth for the full year.

“The Chinese news was good and we had some positive news out of Europe as well,” said Rob Montefusco, a trader at Sucden Financial in London. “Technicals are pointing upwards.”

But U.S. stocks pared earlier gains. About 1 p.m. (1300 GMT), the Dow Jones industrial average <.DJI> was up 15.34 points, or 0.16 percent, at 9,521.30. The Standard & Poor’s 500 Index <.SPX> was up 1.11 points, or 0.11 percent, at 1,027.24. The Nasdaq Composite Index <.IXIC> was down 1.49 points, or 0.07 percent, at 2,019.41.

European shares hit their highest closing level in nearly 10 months, boosted by banks and miners.

The FTSEurofirst 300 <.FTEU3> index of top European shares ended 0.9 percent up at 975.19 points, the highest closing level since early November.

Banks were among top gainers, with DJ STOXX banking index <.SX7P> rising 1.8 percent.

Japan’s Nikkei average <.N225> jumped 3.4 percent, booosted by hopes for a global recovery and lifted by camera maker Canon Inc <7751.T> and other exporters.

Investors increased their risk-taking in the wake of stronger-than-expected U.S. existing home sales data and upbeat comments from Federal Reserve Chairman Ben Bernanke.

Copper prices rose to their highest in more than a week, helped by strong investment demand and bets the economic crisis is petering out.

Jesper Dannesbee, a senior commodities strategist at Societe General, said real demand has not improved that much it but will improve gradually through the year.

“This is follow through from Friday. There is a general appetite for risky assets driven by cheap money and lax monetary policy,” Dannesbee said.

Gold edged below $950 an ounce, under pressure from a firmer dollar, but remained rangebound as support from higher oil prices and investor demand prevented it falling further.

Spot gold was at $949.80 per ounce

U.S. Treasury debt prices rose, with the 30-year bond gaining more than a full point, as investors did some bargain hunting after Friday’s sharp losses and after the Federal Reserve bought government debt.

The benchmark 10-year U.S. Treasury note was up 19/32 in price to yield about 3.49 percent.

Benchmark euro zone government bonds ended flat as data bolstered the recovery view, but caution on its sustainability eased the selling pressure.

“The stock market has been the barometer for growth and potential inflation,” said Troy Buckner, managing principal of NuWave Investment Management in Morristown, New Jersey. “And yes. it’s been an extreme correlation between equity market movements and commodities, especially copper, aluminum and crude oil.”

But Buckner said that prices have climbed “too far too fast,” leading his firm to short crude and heating oil, while reducing long positions in copper and aluminum.

Euro zone government bonds ended flat as economic data bolstered the view the global economic recovery is under way but caution about the recovery eased selling pressure. Investors worried whether new U.S. debt issuance this week would be welcomed by buyers.

U.S. crude rose 51 cents to $74.40 a barrel.

Aug 24 (Reuters)