Euro falls, Treasury yields up as higher U.S. rates seen

Reuters
Traders work on the floor of the New York Stock Exchange
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Traders work on the floor of the New York Stock Exchange June 6, 2014. REUTERS/Brendan McDermid

By Rodrigo Campos

NEW YORK (Reuters) - A worldwide measure of stocks was little changed on Tuesday, while U.S. Treasury yields touched one-month highs and the euro fell as the prospect of higher U.S. interest rates began to take hold in markets.

After the European Central Bank last Thursday adopted a more accommodative monetary policy stance, focus is shifting to the Federal Reserve's meeting next week. Analysts said there could be a reassessment of the timing of the first U.S. rate increase.

Stocks closed flat on Wall Street a day after the S&P 500 hit a record close for a fourth straight session, with utilities (.SPLRCU), recently favored because of their high dividend yield, leading on the downside.

"A lot of people have been concerned the S&P 500 has hit so many price targets that it does need to consolidate a bit, so that's why the activity is a little quieter than normal," said Michael O’Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut.

"People don't have a reason to sell but they also don't have a reason to go out and buy with any type of enthusiasm, so you kind of end up in this holding pattern."

The Dow Jones industrial average (.DJI) rose 2.82 points or 0.02 percent, to 16,945.92, the S&P 500 (.SPX) lost 0.48 point or 0.02 percent, to 1,950.79 and the Nasdaq Composite (.IXIC) added 1.75 points or 0.04 percent, to 4,338.00.

The pan-European FTSEurofirst 300 index (.FTEU3) edged up 0.3 percent to its highest close since January 2008. MSCI's 45-country stock gauge edged up less than 0.1 percent to 427.33, less than 2 points away from a record.

The euro fell near last week's four-month low against the U.S. dollar at $1.3532.

The greenback drew support both from the ECB's decision last week to cut interest rates and to start charging banks for keeping their spare cash on deposit and by fresh bets that the Fed could begin to raise rates earlier than expected.

Comments on Monday by James Bullard, president of the St. Louis Federal Reserve Bank, added to the focus on the Fed. Bullard said he could move forward his view on when rates should be raised.

The dollar index (.DXY), which measures the greenback against a basket of key currencies, climbed 0.2 percent, though the dollar was slightly lower against the yen, at 102.32 yen.

"If broader measures are suggesting that the U.S. economy is on a stronger footing, the market has to bring forward the expectations of a Federal Reserve rate hike," said Aroop Chatterjee, currency strategist at Barclays in New York.

The greenback continued to benefit from rising U.S. Treasury yields as the benchmark 10-year yield topped 2.65 percent for the first time since May 13 before inching back to 2.642 percent.

The Fed meeting on Tuesday and Wednesday will be followed by a press conference by Fed Chair Janet Yellen, who likely will be pressed on the timing of rate hikes.

In commodities, gold edged up 0.7 percent, while Brent oil (LCOc1) fell 0.3 percent and U.S. crude prices (CLc1) added 0.2 percent in volatile trading. [GOL/] [O/R]

A breakdown in strike talks in South Africa pushed palladium up 1.8 percent to a three-year high while copper (CMCU3) bounced from a one-month low to gain 0.1 percent on the day.

(Additional reporting by Caroline Valetkevitch, Sam Forgione and Gertrude Chavez-Dreyfuss; Editing by Nick Zieminski, Leslie Adler, Chizu Nomiyama and James Dalgleish)

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