Dollar up on Fed rate bets, earnings lift world shares

By Jamie McGeever

LONDON (Reuters) - The dollar rose to its highest in more than three months on Wednesday after a Federal Reserve official said the central bank was close to raising interest rates, while solid European corporate earnings propelled stocks higher.

In an interview with the Wall Street Journal on Tuesday, Atlanta Federal Reserve President Dennis Lockhart, regarded as one of the Federal Open Market Committee's centrist policymakers, put next month back on the table for the first U.S. rate hike in almost a decade.

Global bond yields rose and the dollar's strength kept gold prices anchored near recent five-year lows, though oil clawed back a small part of its 20 percent losses in the past month.

Meanwhile, shares in French bank Societe Generale surged 9 percent, reviving stock market sentiment that had been soured by Lockhart's comments and a slide in Apple shares the previous day.

"The market has been wrong-footed once more by the Federal Reserve," said Kathleen Brooks, research director at FOREX.com. "A rate hike cometh - time for the market to play catch up."

The dollar index, which measures it against a basket of currencies, rose to 98.218, its highest since April 23.

The greenback was close to multi-year highs against emerging market currencies including the South African rand, Brazilian real and Indonesian rupiah.

The euro fell 0.25 percent to a two-week low of $1.0847.

DON'T FIGHT BULL MARKET

Investors narrowed the odds on a September U.S. rate hike, with Fed fund futures implying around a 1-in-2 chance, compared with around 1-in-3 after weak wage growth data last week.

Yields on 10-year Treasury notes rose 4 basis points on the day to 2.25 percent, having hit two-month lows around 2.14 percent earlier this week.

In stocks, Europe's index of the leading 300 shares was up 0.9 percent at 1,595 points, Britain's FTSE 100 was up a third of one percent and Germany's DAX up 1.3 percent.

France's CAC 40 was up 1.2 percent, led by SocGen, after the bank reported second-quarter results that beat analysts' forecasts.

Unemployment figures from Portugal and a report on Spain's service sector boosted investor sentiment in Europe and overshadowed less encouraging euro zone retail sales data.

Earlier in Asia, Japan's Nikkei rose 0.5 percent but MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.2 percent.

In China, the CSI300 index of the largest listed companies in Shanghai and Shenzhen was flat after curbs on short-selling prompted a sizable bounce on Tuesday.

There were also signs Chinese consumers could be taking over from manufacturers as the driving force for growth as the Caixin/Markit survey of services climbed to its highest in 11 months.

Losses on Wall Street on Tuesday had been modest, with the Dow ending 0.27 percent lower, the S&P 500 easing 0.22 percent and the Nasdaq 0.19 percent.

Apple hit its lowest in over six months, apparently in part on worries about demand in China.

U.S. futures pointed to a higher open on Wall Street on Wednesday of around 0.4 percent.

"Rate hikes eventually burst bubbles, but it usually takes at least three. We think it is still too early to fight this bull market," Citi's U.S. equity strategy team said in a note to clients.

In commodity markets, Brent oil rose 1 percent to $50.46 a barrel and U.S. crude gained 0.8 percent to $46.12. Gold eased to $1,085 an ounce.

(Editing by Larry King; To read Reuters Global Investing Blog click on http://blogs.reuters.com/globalinvesting; for the MacroScope Blog click on http://blogs.reuters.com/macroscope; for Hedge Fund Blog Hub click on http://blogs.reuters.com/hedgehub)