Dollar hits four-year high, hurts equity outlook

NEW YORK (Reuters) - The dollar hit a four-year high as the yield difference between U.S. and German bonds widened to the highest in nearly 15 years on Thursday, while global equity markets fell sharply as the stronger dollar pointed to potential earnings losses.

Weak European economic data on Wednesday also helped push the euro lower, while the strong dollar knocked down oil and other commodity prices on Thursday.

The dollar index <.DXY>, which measures the greenback against a basket of major currencies, rose to a four-year high of 85.485 before paring some gains, up 0.25 percent at 85.249.

The euro fell as low as $1.26955 on trading platform EBS, its lowest since November 2012, as the yield gap is a key driver of exchange rates.

Selling in the euro, which was last off 0.32 percent against the dollar at $1.2738, quickened after the shared currency sank below the $1.2750 level, according to Boris Schlossberg, managing director at BK Asset Management in New York.

The spread between benchmark U.S. and German 10-year debt was 156 basis points at one point, within touching distance of recent 15-year highs of 158 basis points.

Ten-year German Bund yields fell to 0.975 percent, while 10-year U.S. Treasury yields slipped to 2.5167 as the price rose 14/32.

Companies in the S&P 500 derive almost half their revenue from abroad, which is why a 6.3 percent gain in the dollar index so far in the third quarter from a year ago, and its impact on earnings, caused such a sell-off on Wall Street.

"A stronger dollar, if it moves too rapidly, is typically a pattern that is bad for U.S. equities," said Keith Bliss, senior vice-president at brokerage Cuttone & Co in New York.

Stocks on Wall Street fell more than 1 percent, and pushed MSCI's all-country index <.MIWD00000PUS> down 1.08 percent to 419.13. The FTSEurofirst 300 <.FTEU3> index of top European shares retreated, closing down 0.92 percent at 1,373.09.

The Dow Jones industrial average <.DJI> fell 237.77 points, or 1.38 percent, at 16,972.29. The Standard & Poor's 500 Index <.SPX> was down 27.68 points, or 1.39 percent, at 1,970.62. The Nasdaq Composite Index <.IXIC> was down 78.21 points, or 1.72 percent, at 4,477.01.

Apple shares fell 2.96 percent to $98.74 after the firm pulled back an update to its new operation system, which some users complained had resulted in a drop in cellular service and an inability to use the fingerprint-reading Touch ID feature on its new phones.

Brent crude hovered above $97 a barrel after earlier falling as abundant supply and the strong dollar largely outweighed worries about Mideast conflict.

Brent was of 5 cents at $96.90 a barrel. U.S. crude was up 15 cents at $92.94 a barrel.

Three-month copper on the London Metal Exchange closed down 0.7 percent at $6,695 a tonne.

(Reporting by Herbert Lash; Additional reporting by Marc Jones in London; Editing by Dan Grebler)

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