GLOBAL MARKETS-U.S. dollar retreats as oil, gold recover
Reuters* Crude oil up $1 on storm threat to supply
* MSCI Asia ex-Japan stock index at 17-month low
* Energy sector sees $1 bln in redemptions in week - EPFR
By Kevin Plumberg
HONG KONG, Aug 18 (Reuters) - The U.S. dollar slipped onMonday, easing from a six-month high against the euro as goldand oil prices rose, but slowing demand for commodities waswidely seen supporting the currency in the medium term.
Reports in recent weeks have confirmed the euro zone andJapanese economies are shrinking, prompting dealers to scaleback expectations for interest rate increases and emergingmarkets investors to prepare for a potential backlash.
Asian stock markets were mixed, with shares outside Japanhitting a 17-month low on a view that faltering consumer demandin developed economies will likely hit exports even harder. ButJapan's Nikkei share average ended 1.1 percent higher asinvestors looked for bargains after a recent market sell-off.
European stock markets were expected to open slightlylower, according to financial spreadbetters, with both the euroand oil prices rising.
Fears about a protracted global slowdown have caused oilprices to reflect a much lower so-called demand premium, as topconsumers like China ratchet down energy imports.
On Monday, U.S. light crude prices climbed more than $1 to$115 a barrel on threats to supply in the Gulf of Mexico from atropical storm.
Still, the overarching trend for lower commodity prices anda stronger dollar remained firmly in place.
"Fresh weakness in European economic data and the easinginflation threat given the sharp fall in oil prices had themarket shifting its focus to growth from inflation in recentweeks," said Nizam Idris, currency strategist with UBS inSingapore.
"This has helped the U.S. dollar, not due to any strongU.S. macroeconomic data, but more due to the incrementalweakness in other major economies," Idris said in a note.
The MSCI index of Asia-Pacific stocks outside Japan fell0.5 percent and has now tumbled 34 percent from a life highlast November.
Hong Kong's Hang Seng index fell 1.2 percent to afive-month low after a profit warning from the world's biggestcontract manufacturer of cellular phones, Foxconn InternationalHoldings, unleashed fears of more domestic weakness.
Foxconn shares plunged 19 percent on the news.
The Shanghai composite index fell 4 percent to a 19-monthlow, hurt by shares of coal producers after Beijing raisedexport taxes on coal to curb power shortages.
EMERGING MARKETS AT RISK
The dollar was down 0.3 percent against the yen at 110.15yen, after touching a seven-month high on Friday above 110.60yen.
The euro rose 0.4 percent to $1.4750 after posting itsfifth weekly loss against a resurgent U.S. dollar. Sincemid-July, when oil prices peaked, the euro has tumbled morethan 8 percent, on Friday hitting its lowest since February.
After crude's gains this year were cut by two thirds in thepast month, investors have slashed their exposure to the energysector and put money back into U.S. assets.
Last week, energy sector funds saw redemptions of more than$1 billion, money flowed out of Middle East and Africa fundsfor the first time this year and Brazil equity funds sufferednet outflows for a 10th consecutive week, according to EPFRGlobal, a Boston-based firm that tracks $10 trillion in assets.
Asset-allocation strategists with JPMorgan said investorsshould keep betting on government bonds and expect U.S. stocksto outperform European equities in the current environment ofslowing global growth.
They also expect the U.S. dollar to continue strengtheningagainst the euro, Australian dollar and New Zealand dollar.
"Markets are sensing that global demand is weakening andthat economies outside the U.S. are bearing the brunt of thisweakness. Even emerging markets growth, which showed remarkableresilience in the first half, is at risk of falling belowtrend," the strategists said in a weekly note.
"We continue to position for the intensification of growthweakness outside the U.S. through the currency markets."
The global slowdown has already penetrated Asia ex-Japan.Hong Kong's economy is shrinking on a quarterly basis, data onFriday showed, joining Singapore.
In the bond market, Japanese government bond futures roseon expectations the Bank of Japan would keep rates on hold incoming months with the economy possibly already in a recession.
At a two-day meeting starting on Monday, the BOJ isexpected to downgrade its view of the economy and keep interestrates on hold at 0.5 percent.
September futures rose 0.15 point to 137.84, in sight of afour-month high of 138.12 hit last week.
The benchmark 10-year yield edged down 1 basis point to1.445 percent, near a four-month low of 1.415 percent touchedlast week.
Spot gold prices rose 1.8 percent to just above $800 anounce on the recovery in oil prices. The yellow metal slumpedmore than 8 percent last week, its biggest drop since 1983,triggering a broad decline in metals prices. (Editing by Dhara Ranasinghe)