By Michael Patterson Feb. 18 (Bloomberg) -- The dollar strengthened, driving the euro to near a nine-month low, as European officials wrangled over aid to Greece and the Federal Reserve said it may unwind some economic stimulus measures. Metals fell for a second day. The dollar gained 0.2 percent against the euro at 10:14 a.m. in London, trading within a quarter-cent of its strongest level since May. Copper and nickel slipped. The MSCI World Index of stocks fell 0.1 percent and futures on the Standard & Poor’s 500 Index declined 0.2 percent. Greek 10-year government bonds dropped, sending yields up 17 basis points to 6.5 percent. German Chancellor Angela Merkel slammed the “scandal” of banks helping Greece massage its deficit, saying the nation “falsified its statistics for years.” Horst Seehofer, a leader in Merkel’s coalition, said yesterday that “not a single euro” should go to Greece. Minutes of the Fed’s most recent meeting published yesterday showed the central bank is debating how to unload housing debt it purchased to bolster the economy. “The EU wants to show it is behind the peripherals without having to put its money where its mouth is,” wrote Jim Reid, a strategist at Deutsche Bank AG in London, in a research note. “Either the EU has to give more detail, or the risk is that the market forces it out.” As well as Greece, Spain, Portugal and Ireland are struggling to reduce record deficits. Dollar Index The dollar strengthened versus 13 of its 16 major counterparts tracked by Bloomberg, while the yen gained against every one. The Dollar Index, which gauges the currency against those of six major U.S. trading partners, climbed for a second day, gaining 0.2 percent. Greek bonds retreated this week as EU regulators ordered the country to disclose details of currency swaps after an inquiry uncovered a series of agreements with banks that it may have used to conceal its debts. The pound extended losses and gilt yields climbed after the U.K. posted its first January budget deficit since records began in 1993. Government spending exceeded revenue by 4.3 billion pounds ($6.7 billion), almost double the gap predicted by economists in a Bloomberg News survey. The pound weakened to $1.5579, while the 10-year gilt yield increased by 3 basis points to 4.05 percent. The decline in U.S. futures indicated the S&P 500 may erase yesterday’s 0.4 percent advance. Fed officials unanimously agreed that Fed assets and banks’ excess cash will need to shrink “substantially over time,” policy makers said in minutes of the Jan. 26-27 Federal Open Market Committee meeting. U.S. Expansion The index of U.S. leading indicators probably rose in January for a 10th straight month, pointing to an economy that will keep expanding through the first half of this year, economists said before a report set for 10 a.m. New York time. The Conference Board’s gauge of the outlook for the next three to six months rose 0.5 percent after climbing 1.1 percent in December, according to the median forecast of 53 economists surveyed by Bloomberg News. Other reports, due at 8:30 a.m., may show producer prices increased in January and initial jobless claims fell last week. More than 350 companies in the S&P 500 have reported fourth-quarter earnings since Jan. 11, and about 76 percent have beaten analysts’ estimates on a per-share basis, according to data compiled by Bloomberg. Wal-Mart Stores Inc. and Dell Inc. are among 16 companies on the benchmark gauge for U.S. equities that are scheduled to report today. Emerging Markets The MSCI Emerging Markets Index declined 0.5 percent, the steepest drop in almost two weeks, as benchmark gauges in Russia, Hungary and Turkey dropped more than 1 percent. Developing-nation currencies weakened against the dollar, led by a 0.7 percent retreat in South Korea’s won and a 0.5 percent slide in the Indonesian rupiah. Europe’s Dow Jones Stoxx 600 Index fluctuated between gains and losses. Daimler AG, the world’s second-biggest maker of luxury cars, plunged 7.9 percent in Frankfurt after posting a fourth-quarter loss and canceling its dividend. Akzo Nobel, the largest maker of coatings, plummeted 8.3 percent in Amsterdam after reporting a surprise loss. Declines were limited as ABB Ltd. surged 4.5 percent in Zurich. The world’s biggest builder of power grids said fourth-quarter profit more than doubled. The MSCI Asia Pacific Index fell 0.5 percent. Qantas Airways Ltd., Australia’s biggest airline, plunged more than 7 percent in Sydney after profit dropped. Aluminum Corp. of China Ltd., the nation’s biggest producer of the metal, sank 2.8 percent in Hong Kong. Treasuries, Bunds Treasury 10-year yields were little changed near the highest levels in five weeks before the producer-price report. German 10-year bonds declined, sending the yield up 2 basis points to 3.21 percent. Copper for delivery in three months dropped $55, or 0.8 percent, to $7,075 a metric ton on the London Metal Exchange and nickel slumped 1.2 percent to $19,900 a ton. The LME Index of industrial metals declined 0.4 percent yesterday, the first drop this week. Gold for immediate delivery decreased 0.3 percent to $1,102.10 an ounce. Crude oil for March delivery fell as much as $1.01, or 1.3 percent, to $76.32 a barrel in electronic trading on the New York Mercantile Exchange, after the dollar strengthened and the American Petroleum Institute yesterday reported a weekly gain in U.S. gasoline inventories. To contact the reporter on this story: Michael Patterson in London at mpatterson10@bloomberg.net.

Source