By Polya Lesova and Kate Gibson, MarketWatch
NEW YORK (MarketWatch) â€" U.S. stock futures retreated a bit from two-year highs Monday as the dollar gained against the euro and other currencies.
Euro Loses As Market Amnesia Fades
With the Fed’s ‘QE2’ and the U.S. midterm elections out of the way, investors are starting to dimly remember other economies, other problems.
With no economic reports scheduled to start the week, investors were expected to view signs of strength in the greenback as a reason for pocketing some profits from equities, which are trading at levels not hit since Lehman Brothers went belly up in September 2008.
“Watch the dollar as it would be the perfect opportunity for a market pullback. However, I would expect any pullback to be shallow and relatively short-lived, as we start to gear up for good news in quarter four,†wrote Marc Pado, U.S. market strategist at Miller Tabak.
Futures on the Dow Jones Industrial Average /quotes/comstock/21b!f:dj\z10 (DJZ10 11,362, -14.00, -0.12%) Â dropped 18 points to 11,358 and S&P 500 futures fell 3 points to 1,218.9.
“The S&P has been up nine of the past 10 weeks, gaining 17.9%. While we are clearly extended on a technical basis, the fact is that the market got the election results it wanted, the quantitative easing it was expecting, and much better economic news that it could have hoped for,†noted Pado.
Nasdaq 100 futures /quotes/comstock/21m!f:nd\z10 (NDZ10 2,180, -5.00, -0.23%) Â declined 5.75 to 2,179.
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U.S. stocks finished slightly higher on Friday. The blue-chip Dow industrials /quotes/comstock/10w!i:dji/delayed (DJIA 11,444, +9.24, +0.08%)  gained 2.9% last week, buoyed by the Federal Reserve’s decision to start a new round of quantitative easing, or QE, in an effort to revive the sluggish U.S. economic recovery.
“The key thing really is some of the friction that has been building as a result of QE, and that comes ahead of the Group of 20 meeting later this week,†said Mike Lenhoff, chief strategist at London-based Brewin Dolphin.
“This puts more pressure to put pretty high up on the agenda the manner by which they [global officials] will resolve trade imbalances,†he said.
In a Financial Times editorial Monday, World Bank president Robert Zoellick suggested that leading economies consider using a modified global gold standard to shepherd currency rates.
“The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values,†wrote Zoellick, a former U.S. trade representative. World Bank’s Zoellick makes case for gold-based currency regime.
Officials from several major economies, including Germany’s finance minister, have criticized the Fed’s move to purchase a further $600 billion of longer-term Treasury securities â€" the centerpiece of quantitative easing. The tensions come ahead of this week’s meeting of the G-20 nations in South Korea.
Lenhoff also said that equity markets have had a very strong run and that the time has likely come for some profit-taking.
James Bullard, president of the Federal Reserve Bank of St. Louis, is due to speak in New York.
President Barack Obama is continuing his visit to India where he hopes to strengthen U.S. economic ties.
Also Monday, regulators are looking at some Citigroup Inc. /quotes/comstock/13*!c/quotes/nls/c (C 4.49, +0.16, +3.70%) Â debt funds to determine if the bank made sufficient disclosure to investors about risk, the Wall Street Journal reported, citing people familiar with the matter.
On the corporate front, shares of Berkshire Hathaway Inc. /quotes/comstock/13*!brk.a/quotes/nls/brk.a (BRK.A 125,560, +1,080, +0.87%) Â may see active trading after the Warren Buffett-run firm reported late Friday a decline in third-quarter net income. Operating earnings, however, rose to $2.79 billion from $2.06 billion.
U.S.-listed shares of Bank of Ireland /quotes/comstock/13*!ire/quotes/nls/ire (IRE 2.58, -0.28, -9.79%)  slumped in premarket trading, as worries about Dublin’s financial health continued to rise.
European stock markets traded mostly lower. Data showed that Germany’s industrial production unexpectedly declined in September.
In the currency markets, the dollar index /quotes/comstock/11j!i:dxy0 (DXY 76.93, +0.38, +0.50%) Â which tracks the performance of the greenback against a basket of other major currencies, rose 0.5% to 77.009. The euro fell 0.2% to $1.3918.
In commodities, gold futures dropped $5.60 to $1,392.10 an ounce in electronic trading on Globex. Crude-oil futures also slipped, down 48 cents to $86.37 a barrel.
Polya Lesova is chief of MarketWatch’s London bureau. Kate Gibson is a reporter for MarketWatch, based in New York.
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