U.S. stocks sag as euro equities, dollar gain

By Michael Connor

NEW YORK (Reuters) – Wall Street drifted down while European shares neared record highs in choppy global equities trading on Tuesday as the dollar rebounded and oil prices fell.

The dollar’s gains knocked the euro back below $ 1.10, even as yields on U.S. Treasuries eased on betting in credit markets that low inflation will persist and delay interest rate hikes by the Federal Reserve.

Data from home sales to inflation and manufacturing published on Tuesday indicated the U.S. economy remains strong but did little to shift Wall Street expectations about the timing of the first Fed rate increases since 2006.

The Dow Jones industrial average (.DJI) closed down 104.96 points, or 0.58 percent, at 18,011.08, the S&P 500 (.SPX) lost 12.92 points, or 0.61 percent, to 2,091.50 and the Nasdaq Composite (.IXIC) dropped 16.25 points, or 0.32 percent, to 4,994.73.

Declines on the Nasdaq were held in check by a boost from Google (GOOGL.O), up 2 percent to $ 570.19. Morgan Stanley’s (MS.N) chief financial officer is leaving the bank to join Google.

Europe’s FTSEurofirst 300 (.FTEU3) index of top shares closed up 0.26 percent at 1,604.36, near a recent 7-1/2-year high, after a stronger-than-expected survey showed euro zone manufacturing at a four-year high.

The MSCI world equity index , which tracks shares in 45 nations, was off 0.21 percent at 432.00 after rising to almost 434.5, according to Thomson Reuters data.

The euro (EUR=) topped $ 1.10 early in the global session but was last down 0.30 percent at $ 1.092. The dollar has been on a roll for 12 months, rising more than 20 percent against a basket of major currencies on expectation of higher U.S. rates.

“Any positive surprises from the euro area are further adding to this euro/dollar rally; however we think this is temporary,” said Nikolaos Sgouropoulos, foreign exchange strategist at Barclays in London. “We still believe in the dollar strength trend going into the second half of the year.”

The greenback’s gains have been tempered somewhat since the Fed last week cut its forecasts for U.S. inflation and growth, forcing investors to reconsider when the Fed might start raising rates.

The dollar index (.DXY) was last up 0.1 percent at 97.156, below its 12-year peak of 100.390 struck on March 13.

San Francisco Fed President John Williams said on Tuesday the strong dollar would drag on growth this year, though the U.S. economy was strong enough to handle it.

Bond yields fell with inflation remaining low. Core U.S. consumer inflation is running at a 1.7 percent year-over-year rate and U.K. inflation was unchanged on an annual basis.

Benchmark 10-year U.S. Treasury notes were last up 10/32 in price, the yield falling to 1.88 percent.

Brent crude fell under $ 55 a barrel (LCOc1) and was last off 1.61 percent at $ 55.02, as Saudi Arabia said its production was close to an all-time high. [O/R]

(Additional reporting by Jemima Kelly, Ahmed Aboulenein, Patrick Graham and John Geddie in London, Blaise Robinson in Paris and Lisa Twaronite in Tokyo; Editing by Mark Trevelyan, James Dalgleish and Dan Grebler)

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