GLOBAL MARKETS-Dollar hits five-week low on Fed caution, Wall St sags

* Dollar hits five-week low vs basket of currencies

* Wall Street opens lower as profit taking sets in

By Leah Schnurr

NEW YORK, July 26 (Reuters) - Wall Street sagged on Friday

as a slew of corporate earnings prompted investors to take a

pause, while the dollar fell to a five-week low on speculation

the U.S. Federal Reserve will underline next week its intention

to keep interest rates low for a long time.

Moves by Fed officials to soothe concerns about its stimulus

withdrawal plans have seen the dollar tumble this month as

equities markets have recovered.

Last month the Fed said it expects to start slowing down the

pace of its $85 billion in bond purchases later this year. Fed

Chairman Ben Bernanke has since stressed that the timeline is

not set in stone and could change if the economic outlook

shifts, comments that soothed Wall Street and the bond market.

Setting the greenback on its latest fall was a Wall Street

Journal report published online Thursday that the Fed may debate

tweaking its forward guidance message to hammer home its signal

that it will not be raising rates any time soon.

Focus is now on next week's two-day policy meeting. The

dollar's slide began on July 10, when minutes of the Fed's June

meeting gave investors second thoughts about when the bank would

start reducing stimulus.

"Folks are just treading water. They just want to see the

big numbers next week to get some directional guidance," said

Samarjit Shankar, director of market strategy at BNY Mellon in

Boston.

As well as the Fed's policy meeting on Tuesday and

Wednesday, next week features a round of economic indicators,

culminating in the U.S. government's report on non-farm payrolls

on Friday.

Against a basket of currencies the dollar was down

0.4 percent. The greenback earlier hit 81.548, its lowest since

June 20 and just above chart support at 81.506 - its 200-day

moving average.

The dollar's weakness left the euro at a five-week

high of $1.3296.

U.S. stocks were lower about an hour after trading started

as investors took in earnings results from big names including

Amazon.com (NasdaqGS: AMZN - news) and Starbucks.

With the S&P 500 up about 18 percent for the year, Friday

also provided an opportunity for some minor profit taking.

For the week, the S&P is down about 0.5 percent, its first

down week in five, but the benchmark is up 4.7 percent so far

this month, its best month since January. The Nasdaq is up 5.5

percent for July so far, its best monthly gain in a year and

half.

"There were two days this week, Tuesday and Wednesday when

we came strikingly close to the 1,700 (on the S&P 500) but

didn't quite move up. There is profit taking here and there as

we face this resistance," said Randy Frederick, director of

derivatives at the Schwab Center for Financial Research in

Cincinnatio, Ohio.

The Dow Jones industrial average slipped 92.00

points, or 0.59 percent, to 15,463.61. The Standard & Poor's 500

Index fell 8.30 points, or 0.49 percent, to 1,681.95. The

Nasdaq Composite Index was off 11.28 points, or 0.31

percent, to 3,593.91.

SUPER MARIO

The pan-regional FTSEurofirst 300 fell 0.2 percent

and was facing the prospect of its first weekly drop in over a

month. World stocks slipped 0.3 percent.

Nevertheless, it was a milestone day for Europe, marking one

year since ECB President Mario Draghi's "Whatever it takes"

speech that turned the tide in the euro zone debt crisis.

Italy and Spain have seen their 2-year bond yields fall from

5 and 6.4 percent, respectively, before Draghi's speech to under

2 percent, saving them immense amounts in interest payments.

"Draghi's speech was a real game changer. Investors'

perception of the euro zone dramatically changed, and many

people stopped shorting Europe. The systemic fears about

Europe's debt crisis are gone," said Pierre-Yves Gauthier, head

of strategy at AlphaValue, in Paris.

With both the Fed and the European Central Bank meeting next

week, plus some significant political events in Europe including

Spanish prime minister Mariano Rajoy facing questions in a

corruption scandal, BNP Paribas (Milan: BNP.MI - news) economist Ken Wattret said

investors were likely to remain cautious.

"You look at the equity markets and the data in the U.S. and

Europe has been good yet we are flat, so that probably tells you

that we have had a good run and there is a bit of a pause going

on," he said.

Gold slipped but was still on course for a third

weekly gain. Spot gold fell 0.5 percent on the day to

$1,326.70 per ounce as buyers cashed in on the day's $1,340

peak, around $150 up from the three-year low hit on June 28.

Source: http://news.yahoo.com/global-markets-dollar-hits-five-151017538.html

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