NEW YORK, Sept 29 (Reuters) - Rising expectations central banks will step up monetary stimulus to support fragile economies drove the dollar to a five-month low against the euro on Wednesday and fed profit taking in stocks.
Investors trimmed their U.S. and European equity positions while an uncertain economic outlook kept commodity prices from rallying too strongly despite the benefit they often get from a sagging U.S. dollar.
Spot gold XAU= did edge up to fresh record high of $1,313.20 and silver XAG= set its best level in 30 years. Oil made only a modest gain on the day.
"We obviously have a negative combination for the U.S. dollar, and the Fed opening the door for potential easing has just stoked fears of dollar weakness and currency debasement generally," said Camilla Sutton, chief currency strategist at Scotia Capital in Toronto.
Wednesday's contrasting reports of Chinese [ID:nTOE68S046] and European [ID:nLDE68S0LU] economic and business sentiment advancing this month added to pressure on the greenback.
There is mounting speculation the U.S. Federal Reserve may engage in quantitative easing -- a process of buying up bonds and other assets to put fresh cash into the economy rather than through lower borrowing costs -- sooner rather than later.
Last week, the Fed said it was prepared to do just that if it were necessary to stimulate the recovery and avoid deflation. The Fed's benchmark interest rate is already at zero to 0.25 percent, leaving no room to stimulate through conventional measures.
In midday U.S. trade, the Dow Jones industrial average .DJI fell 45.45 points, or 0.42 percent, at 10,812.69. The Nasdaq Composite Index .IXIC dropped 9.69 points, or 0.41 percent, at 2,369.90.
The Standard & Poor's 500 Index .SPX lost 5.52 points, or 0.48 percent, at 1,142.18. However, for the month the index is up nearly 9 percent, its best monthly performance since May 2009 and before that the best showing since March 2000.
Hewlett-Packard Co (HPQ.N) rose 1.4 percent to $42.25 after the computer and printer maker forecast 2011 profits above estimates. For details, see [ID:nN28273797]
Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co in San Francisco, said the market was technically overextended, but a recent pattern of buying on dips could re-emerge as fund managers "window dress" their portfolios.
European shares gave up earlier gains after the U.S. market opened weaker.
The FTSEurofirst 300 .FTEU3 index of top European shares was down 0.61 percent at 1070.77. Weaker retail shares after disappointing figures from Swedish fashion group Hennes & Mauritz (HMb.ST), the world's third largest clothing retailer, proved a drag on the index.
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