NEW YORK (Reuters) - The dollar strengthened against the yen and other major currencies on Monday after the Group of Seven backed Japan's efforts to spur growth through aggressive asset purchases, while oil and gold prices fell on the stronger greenback.
A surprise rise in U.S. retail sales in April supported views that the U.S. economy, the world's biggest, remains resilient. The optimistic tone to the data supported the dollar's recent strength, and caused Goldman Sachs (NYSE: GS-PB - news) and JPMorgan (LSE: JPIU.L - news) to upgrade their view on second-quarter growth.
"The dollar's strength from last week carried over into today's trading, helped by the retail sales data, which pushed the dollar higher across the board," said Win Thin, global head of emerging market currency strategy at Brown Brothers Harriman in New York.
On Wall Street, the broad S&P 500 index nearly reversed early losses on profit-taking following last week's stellar run to record highs, while weakness in the top European banking sector knocked the region's share prices lower.
"The value of the dollar has weighed on the prices of all commodities, especially the more sensitive ones such as oil and gold," said Harry Tchilinguirian, head of commodity market strategy at BNP Paribas (Milan: BNP.MI - news) .
A stronger dollar makes dollar-denominated commodities such as oil more expensive for holders of other currencies.
The renewed optimism on the U.S. economy after the retail sales data drove down prices of Treasuries, a traditional safe-haven. In over a week, the yield on the 10-year note has risen 0.30 percentage point from its lowest level of the year following the better-than-expected April jobs report and the dollar's surge against the yen.
The dollar, which has risen 5 percent against a basket of major currencies since February, and double that versus the yen, looked unlikely to buckle after G7 officials meeting over the weekend in Britain showed little concern about the Japanese currency's slump.
The dollar index last traded up 0.17 percent at 83.278, within striking distance of its highest level of the year set last week.
The greenback hit a 4-1/2-year high of 102.14 yen in Asian trading, but ended the day little changed at 101.84 yen following the latest U.S. retail sales figures. The euro edged up 0.08 percent against the dollar at $1.2969 after hitting a five-week low versus the greenback last week.
"Yen selling will have been encouraged by the outcome from the G7 meeting, where officials reiterated that they will tolerate yen weakness as long as it results from the use of domestic instruments to stimulate the Japanese economy," said Lee Hardman, a currency analyst with Bank of Toyko-Mitsubishi.
Brent oil prices settled down $1.09 or 1.05 percent at $102.82 a barrel, with ample supply weighing on sentiment as well as the stronger dollar. U.S. oil futures settled down 87 cents or 0.91 percent at $95.17 a barrel.
Weaker-than-expected industrial output data from China also helped push oil prices lower. London copper, however, climbed 0.09 percent to $7,382 a tonne, as the data raised hopes that monetary authorities in the world's biggest metals consumer may embark on further easing to underpin demand.
China's annual industrial output grew 9.3 percent in April, up from a seven-month low of 8.9 percent in March but still missing market expectations for 9.5 percent expansion.
Spot gold, often bought as an alternative safe-haven to the dollar, fell 1.17 percent to 1,430.61 an ounce.
STOCKS' POSITIVE TREND
With the Standard & Poor's 500 index having closed at a record high on Friday and European shares starting the week at five-year highs, investors had reason to cash in some gains as worries about another spring "swoon" persisted.
The Dow Jones industrial average ended down 26.81 points, or 0.18 percent, at 15,091.68. The Standard & Poor's 500 Index finished up 0.07 point, or 0.00 percent, at 1,633.77. The Nasdaq Composite Index closed up 2.21 points, or 0.06 percent, at 3,438.79.
The pan-European FTSEurofirst 300 index closed down 0.2 percent at 1,231.05, while the MSCI (NYSE: MSCI - news) global index was down 0.05 percent at 374.04, only a few points from the near five-year peak set last week.
In the bond market, benchmark 10-year Treasury notes ended 5/32 lower in price to yield 1.919 percent, just below a six-week high in yield set earlier.
German Bund futures were up 0.1 percent at 144.82.
Italy's three-year debt costs fell to their lowest level since January at an auction on Monday as the backstop from the European Central Bank fed demand for bonds of the euro zone's heavily indebted members.
The head of Italy's central bank, Ignazio Visco, who is also a policymaker of the European Central Bank, suggested in an interview with CNBC television that the ECB could cut its deposit rate below zero. His comments lifted Bund futures from their lowest levels in more than a month after last week's decline on upbeat euro zone and U.S. data.
If the ECB were to push its deposit rate into negative territory, banks would effectively be charged for parking any spare cash they do not lend, something that analysts believe would send investors into other more profitable ultra-safe assets such as Bunds.
(Additional reporting by Julie Haviv in New York; Ron Bousso, Marc Jones in London; Editing by Dan Grebler and Leslie Adler)