DOLLAR STOCKS STILL IN TROUBLE

In Story 1 the Dollar and stocks are still in trouble. Story 2 Chavez and the Euro and story 3 Storm could damage Asia.

Big rise in core inflation spooks Wall Street By Tim Ahmann Wed May 17, 4:40 PM

ET WASHINGTON (Reuters) - A big jump in energy costs pushed U.S. consumer prices up sharply last month, while rising rents led to a surprisingly steep gain in core prices, according to a government report on Wednesday that spooked financial markets. The Labor Department said the consumer price index rose 0.6 percent in April, while the closely watched core index, which strips out volatile food and energy prices, rose 0.3 percent for a second consecutive month. Both figures were above expectations on Wall Street, where economists had looked for overall prices to rise 0.5 percent, with core prices up just 0.2 percent.

The data sent stock markets reeling. The blue-chip Dow Jones industrial average (^DJI - news) closed down 214 points, its biggest one-day drop since March 2003, while the tech-laden Nasdaq composite (^IXIC - news) wiped out its gains for the year. Prices for U.S. government bonds also took a dive as traders saw the strong inflation data as boosting odds of further interest-rate hikes from the U.S. central bank. It's time to get worried," said Brandeis University professor Stephen Cecchetti.

The Labor Department said half of the increase in the core inflation index was due to a 0.3 percent gain in shelter costs, with increases in the cost of apparel, medical care, and education and communication also contributing. The rise in shelter costs reflected the second straight monthly 0.4 percent increase in the department's rents-based measure of owner-occupied housing costs, a sign the rental market may be tightening as Americans give up trying to buy. Over the past 12 months, the core consumer price index has risen 2.3 percent, a pickup from the 2.1 percent gain registered in the period through March and the biggest 12-month advance in more than a year.

ENERGY COSTS HURT

Headline inflation has moved up even quicker because of big gains in energy costs, with overall consumer prices up 3.5 percent in the past 12 months. Energy prices climbed 3.9 percent in April, building on a 1.3 percent March gain. Gasoline prices rose 8.8 percent in April and fuel oil costs increased 5.2 percent. Natural gas prices, however, slid 5.2 percent.The big jump in energy prices over the last year has largely eroded whatever pay gains U.S. workers have managed to win. Over the past year, inflation-adjusted hourly earnings are up just 0.1 percent -- the first gain since last June. Fed officials have been concerned that tightening labor markets and diminishing excess capacity at industrial firms, coupled with persistent pressure from lofty oil prices, could generate a broad-based pickup in inflation.

After raising the benchmark overnight lending rate last week for the 16th consecutive time, the Fed warned borrowing costs may have to move higher still given inflation risks. Bets in futures markets for a 17th straight rate hike at the central bank's upcoming meeting in late June jumped as high as 58 percent on Wednesday, a 20 percentage point gain. While the CPI data will raise eyebrows at the Fed, policy-makers focus more heavily on a separate inflation measure that does not put so much weight on rental costs.

Economists said the Fed could still pause in June to try to gauge whether the economy is downshifting to cooler growth. Buttressing forecasts of a slowdown, the Commerce Department said on Tuesday that U.S. housing starts fell last month to their lowest annual pace since November 2004. While economists saw that as a sign higher mortgage rates were slowing activity, the Mortgage Bankers Association said on Wednesday its seasonally adjusted index of mortgage application activity last week increased 4.6 percent. For details, see .

(Additional reporting by Julie Haviv in New York)

Chavez may price oil exports in euros (associated press)

MAY. 16 7:09 P.M. ET Venezuela's president Hugo Chavez said Tuesday that he would consider pricing his country's oil in euros instead of dollars in line with a similar declaration made by Iran. Earlier this month Iran's state television reported the country's Oil Ministry granted a license for its first euro-denominated market. That is an interesting proposal made by the president of Iran," Chavez told Britain's Channel 4 news. "We are free to choose too between the dollar and the euro.If the market were to succeed -- or if Iran simply demanded payment for its oil in euros -- commodities experts said it could lead central bankers around the world to convert some dollar reserves into euros, possibly causing a decline in the dollar's value.Oil is currently denominated in dollars around the globe, whether through direct sales between producers and consumers or in trades made on markets in New York and London, but Chavez said that he would be willing to seek an alternative.

So what the president of Iran says is recognizing the power of Europe. They have succeeded in integrating and have a single currency competing with the dollar, and Venezuela might also consider that," said Chavez, president of the world's fifth largest oil exporter. Iranian legislators earlier this year urged the government to set up the market to reduce the United States influence over the Islamic republic's economy. First floated in 2004 when reformist president Mohammad Khatami was in power, the idea of a euros-traded oil bourse gained new life after the stridently nationalist Mahmoud Ahmadinejad was elected president last summer.

Typhoon Chanchu threatens Taiwan, southern China; Hong Kong spared 52 minutes

ago SHANGHAI, China (AP) - A powerful typhoon roared toward China's southern coast, forcing the evacuation of more than a half-million people and the cancellation of dozens of flights, the Chinese government said Thursday. Typhoon Chanchu's eye was picking up speed and was expected to hit Guangdong province, one of China's biggest manufacturing centres, later in the day, China's Xinhua News Agency said.

Some 327,000 coastal Guangdong residents had already been moved inland Wednesday and more than 51,000 ships were ordered to return to harbour, Xinhua said. In Fujian province, just north of Guangdong, more than 307,000 people were evacuated and 42,000 ships were docked, it said. Some 26 - mainly domestic - flights out of Fujian also were cancelled and Shanghai-based China Eastern Airlines cancelled 38 flights headed for Hong Kong the nearby mainland city Shenzhen, it said.

After slamming into Guangdong, Chanchu was expected to churn up the coast to Fujian province, just across from Taiwan, said the Hong Kong Observatory's forecast and tracking map. The storm was picking up speed as it moved at 24 kilometres an hour with winds of 158 km/h near its centre. As the storm churned through the South China Sea, it caused an oil tanker to run aground near Taiwan's southern port Kaohsiung, officials said. Rescuers in helicopters lifted 13 crew members off the ship.

The typhoon, the strongest ever reported in the South China Sea in May, was heading toward Hong Kong earlier this week, but it changed course overnight, swirling about 225 kilometres east of the city Wednesday afternoon. The storm kicked up high waves and spawned showers but caused no major damage.

In southern Japan, high waves swept three 17-year-old male students from near a beach Wednesday afternoon, leaving one dead and another missing, officials said. They were in the water off Hateruma island in the southern island chain Okinawa when high waves swept them out to sea, said coast guard spokesman Shoji Kawabata. One was found floating near the island and later pronounced dead at a hospital, Kawabata said. Another was rescued by a local diving boat, while the third remained missing.

Chanchu swept over the Philippines last weekend, killing 37 people and destroying thousands of homes.