(Updates with U.S. markets' close)
By Manuela Badawy
NEW YORK (Reuters) - The U.S. dollar and theBritish pound fell against the euro Tuesday as speculationrose those countries' central banks would provide more stimulusto their economies, which sent gold to record highs.
The euro surged to a five-month high against the greenbackand to a four-month high against the pound on expectations the Federal Reserve and the Bank of England were likely to pumpmore money into their anemic economies, a process known asquantitative easing.
Gold futures rose to $1,310 an ounce and silver hit a30-year high as a weaker-than-forecast U.S. consumer confidencereading and a report that U.S. home prices dipped in Julyboosted the precious metals' safe-haven appeal.
European stocks fell after the early U.S. data showingweakness while Wall Street closed higher as investors rushed tobuy up stocks with strong performance and positive outlooks toavoid missing out on the 9 percent rally in September,typically the year's worst month for stocks.
"For lack of a better term, it really is a 'classic QEday,"' said Tom Fitzpatrick, chief technical strategist atCitigroup in New York. "Bonds rally, equities rally, the dollargoes down and gold hits new highs. At this point, that iswhat's driving the markets."
The Fed is likely preparing a fresh round of quantitativeeasing measures to announce at the end of its Nov. 2-3 meeting,hedge fund adviser Medley Global Advisors said in a report onTuesday, a market source told Reuters.
The Fed is also weighing a more open-ended, smaller-scalebond buying program, the Wall Street Journal reported.
The Bank of England's Adam Posen became the first of thecentral bank's policymakers since November to urge more crediteasing for Britain in order to avoid the kind of slump Japanexperienced in the 1990s.
"The growing realization that ultra loose monetary policiesmay debase currencies is leading to continuing safe-havendemand for gold," analysts at GoldCore said in a note.
The weak U.S. dollar and low bond yields reflect fallinginvestor confidence in the strength of the recovery, analystssaid.
Gold for December delivery reached an all-time highof $1,311.80 an ounce before slipping back to settle at$1,308.30, a rise of $9.70. Silver rose to $21.65, athree-decade high on the spot market after the U.S. data.
The Conference Board's index of consumer attitudes fell to48.5 in September from a revised 53.2 in August, pressured by aweak labor market and business conditions.
U.S. home prices also dipped in July, hovering abovemultiyear lows according a Standard & Poor's/Case-Shiller homeprice report.
On Wall Street, the Dow Jones industrial averageclosed higher 46.10 points, or 0.43 percent, at 10,858.14. TheStandard & Poor's 500 Indexgained 5.54 points, or 0.49percent, at 1,147.70. The Nasdaq Composite Index rose9.82 points, or 0.41 percent, at 2,379.59.
"When a month takes you by a surprise like this, you tendto be underexposed to stocks and overexposed in cash andbonds," said Marc Pado, U.S. market strategist at CantorFitzgerald & Co in San Francisco.
The December futures contract for the Nikkei 225 stockindex trading in Chicago fell 40 points to 9,515.
MSCI world equity index rose 0.33 percentand the Thomson Reuters global stock index gained0.40 percent.
The FTSEurofirst 300 index closed 0.3 percentlower as investors shed riskier assets, while emerging stocks gained 0.07 percent.
The euro was up 1.00 percent at $1.3588. Againststerling, the euro rose to around 85.98 pence from around 84.92pence .
Sterling fell 0.2 percent to $1.5795 as investorsbet there was an increased chance the BoE would expand itsprogram of 200 billion pounds of quantitative easing.
Against the Japanese yen, the dollar was down 0.46percent at 83.87 from a previous session close of 84.260.
The prices of U.S. Treasury debt rose as the latest datashowing another drop in home prices and weaker consumerconfidence added to expectations for more Fed support.
The benchmark 10-year U.S. Treasury note was up18/32, with the yield at 2.4671 percent. The 2-year U.S.Treasury note was down 1/32, with the yield at0.4339 percent. The 30-year U.S. Treasury bond wasup 38/32, with the yield at 3.6588 percent.
(Additional reporting by Steven C. Johnson, Angela Moon in NewYork and Maytaal Angel in London; Editing by Kenneth Barry)