GLOBAL MARKETS-Euro slides, dollar rises on central bank views


* U.S. stocks flat on caution after Fed meeting

* Euro falls the most in 6 months versus U.S. dollar

* Treasuries prices down after strong U.S. data

By Rodrigo Campos

NEW YORK, Oct 31 (Reuters) - The euro fell the most againstthe U.S. dollar in six months on Thursday while the greenbackrose against major currencies on expectations of divergingpolicy paths by the U.S. and European central banks.

The gain in the U.S. currency triggered the largest drop ingold prices in three weeks. Wall Street stocks fell alongsideU.S. Treasuries prices as investors assessed when the FederalReserve will begin to scale back its stimulus.

Market expectations that the Fed would continue its $85billion a month bond-buying program well into next year were notfully met Wednesday at the end of the Fed's policy meeting, andsome now see a chance for the U.S. central bank to begin awind-down in December.

The current pace of purchases has pressured the dollar anddriven Treasury yields lower, while boosting equities and somecommodities. Those trends were partially reversed on Thursday.

In the euro zone, by contrast, inflation dropped to itslowest rate in nearly four years and raised speculation theEuropean Central Bank will further ease monetary policy. Theeuro extended declines on the inflation data, and the greenbackextended gains.

Adding to bets on Fed action, U.S. private industry datashowed business activity in the U.S. Midwest greatly exceededexpectations in October, countering recent evidence of softeconomic growth. New orders hit their highest level since 2004.

"The Chicago PMI spiked higher significantly, showingstrength in manufacturing in that region, and the Fed is verydata dependent," said Tim Ghriskey, chief investment officer ofSolaris Group in Bedford Hills, New York.

"So there is going to be talk because of this that the Fedis closing in on tapering bond purchases."

The Dow Jones industrial average fell 73.01 points or0.47 percent, to 15,545.75, the S&P 500 lost 6.77 pointsor 0.38 percent, to 1,756.54 and the Nasdaq Composite dropped 10.914 points or 0.28 percent, to 3,919.706.

The three major U.S. stock indexes posted gains for themonth of October. For the month, the Dow added 2.8 percent, theS&P 500 gained 4.5 percent and the Nasdaq rose 3.9 percent.

The MSCI world equity index dropped 0.6percent on Thursday, but rose for the month, up 3.9 percent inOctober.

U.S. Treasuries prices fell after the strong Midwestbusiness activity reading, which checked some of the pessimismthat fourth-quarter growth would be sluggish due to the partialgovernment shutdown during the first half of October.

Benchmark 10-year Treasury notes last tradeddown 8/32 in price with a yield of 2.5560 percent. They were upas much as 7/32 in price with a yield of 2.502 percent earlier.


The euro fell the most in six months versus thedollar, down 1.1 percent at $1.3581. The dollar index,which measures the greenback against six major currencies, added0.6 percent to trade above 80 for the first time in two weeks,extending its five-session streak of gains to a total of 1.4percent.

The euro was hurt further after the European Union'sstatistics agency reported that inflation in the 17-country eurozone unexpectedly dropped to a near four-year low in October andunemployment stayed at a record high in September. German retailand French consumer data also came in below par.

"The euro is slumping today and for good reasons. Inflationis falling, the economy is slowing down, the unemployment rateis over 12 percent, and all signals now point to an ECB thatwill turn from hawk to dove," said Jonathan Lewis, leadportfolio manager of the Samson STRONG Nations Currency Fund inNew York.

The dollar strength weighed in commodities markets. Spotgold slumped 1.4 percent, the most in three weeks, whilespot silver lost 3.2 percent, the most in more than amonth.

Brent crude settled down 0.9 percent to $108.84 abarrel and U.S. crude fell 0.4 percent to $96.38.

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