Dollar prices were under pressure after Russian President Dmitry Medvedev, speaking at a summit of the Shanghai Cooperation Organization, said the world needs new reserve currencies.  Wall Street futures point to a flat opening.  

On Monday, US stocks registered their worst slide in a month with the Dow Jones Industrial Average, which ended last week in a positive territory for 2009, went back in the red for the year. Among S&P 500 stocks, 95% registered losses. Commodities and basic material stocks declined, hurt by a rise in US dollar.  The morning session saw most of the declines and stocks traded sideways as the session advanced.  The NASDAQ, off 2.3%, and the S&P 500, down 2.4%, recorded their steepest declines since May 13.  Volume on the NYSE was light with only 1.1 billion shares trading.  Market breadth was negative with decliners outpacing advancing issues by a five-to-one margin.  The market's measure of volatility, the CBOE Vix, jumped the most since April 20, rising 9.5% to 30.81.

The National Association of Home Builders reported that confidence among U.S. home builders fell after rising for two months. A prime concern was the rise in mortgage rates that followed a recent selloff in U.S. Treasurys.  Meanwhile, US Treasuries moved higher for the third straight day, with the benchmark 10-year up 20/32 and the yield declining to 3.715%, falling back from their seven-month highs of last week.

A rising dollar reduced the luster of basic material and oil stocks as inflation hedges.  Positive comments at the G8 summit regarding the greenback's status as world's reserve currency helped the dollar, which rose 1.2% against a basket of currencies.  Copper prices declined 3.7% in New York trade and silver lost 5.7%.  Among DJIA components, only Microsoft (NASDAQ:MSFT) and American Express (NYSE:AXP) recorded gains.  Alcoa (NYSE:AA) led the decliners on the DJIA, dropping 6.5%.  Freeport-McMoRan (NYSE:FCX) fell 5.8% and US Steel (NYSE:X) shares declined 5.7%. Among energy stocks, ExxonMobil (NYSE:XOM) fell 1.3%, and Chevron (NYSE:CVX) declined 2.2%, with Schlumberger (NYSE:SLB) shares down 2.8%. Among S&P 500 components, only 22 advanced with all ten industry groups losing ground.    

The expected decline in industrial production of 1.0%, up from the drop of 0.5% prior, is largely attributed to the GM (NASDAQ:GMGMQ) and Chrysler bankruptcies. Capacity utilization rates are expected to have tightened to 68.4% from 69.1% prior, the lowest in 42 years since record-keeping began.

In overseas developments, ECB warned Eurozone banks on potential additional losses of over $283 billion this year and next.  In a report, the International Monetary Fund said exiting the fiscal stimulus programs will be challenging for the US.  The IMF Chief cautioned that the worst of the recession has yet to be felt. 

The Asian Development Bank, in which China plays a leading role, has extended a $40 million loan at the lowest possible rate to Georgia. The Shanghai Cooperation Organization - which includes China, Kyrgyzstan, Kazakhstan, Tajikistan, and Uzbekistan as well as Russia - refused to countenance Russia's recognition of two breakaway regions of Georgia. The rebuff of Putin is all the more striking because - at least from Putin's perspective - the central purpose of this group was to form an eastern counterweight to NATO. China and the Central Asian states may share the Kremlin's resentment of American dominance in the world, but they are not so eager to construct a multipolar world that they will act against their national interests.