Global stocks pause, dollar jumps on Yellen comments, Ukraine

Packs of U.S. one hundred dollar billas are counted at a bank in Westminster, Colorado
Packs of U.S. one hundred dollar bills are counted at a bank in Westminster, Colorado November 3, 2009. REUTERS/Rick Wilking

By Michael Connor

NEW YORK (Reuters) - Wall Street and other stock markets paused on Friday, halting the week's strong gains, as worsening Ukraine tensions dogged trading, while the dollar rose after Federal Reserve Chair Janet Yellen said policymakers eyeing interest rate hikes need to move cautiously.

Ukraine on Friday said Russia had launched a "direct invasion" of its territory after Moscow sent a convoy of aid trucks across the border into eastern Ukraine, where pro-Russian rebels are fighting government forces.

Moscow, which has thousands of troops close to the Russian side of the border, warned against any attempt to "disrupt" the convoy but did not say what action it might take if Kiev's military intervened.

"The market probably is a little naive in thinking the Ukraine thing is going to blow over pretty soon," said Erik Davidson, deputy chief investment officer at Wells Fargo Private Bank in San Francisco. "We will probably be talking about Ukraine through the winter."

The Dow Jones industrial average fell 38.27 points, or 0.22 percent, to 17,001.22, the S&P 500 lost 3.97 points, or 0.2 percent, to 1,988.40, and the Nasdaq Composite added 6.45 points, or 0.14 percent, to 4,538.55.

Benchmark 10-year U.S. Treasuries ended up 2/32 of a point in price to yield 2.40 percent. The 30-year Treasury traded up 22/32 of a point in price to yield 3.15 percent and benefited from Europe's weakness, geopolitical concerns and views that U.S. growth is as robust as thought.

The U.S. dollar index, which values the greenback against a basket of a half dozen major currencies, was up 0.2 percent at 82.310 after setting a 2014 high of 82.456. The euro was off 0.35 percent against the dollar at $1.323.

“She gave everybody a bone and didn’t commit herself to anything that the market hadn’t already considered," Phil Orlando, chief equity strategist at Federated Investors in New York, said of Yellen's comments.

In a speech to a gathering of central bankers, closely watched for hints on shifts in monetary policy, Yellen said the U.S. labor market is still bruised from the Great Recession and that the Fed should move cautiously in determining when interest rates should rise.

The U.S. jobless rate has fallen more quickly than expected, but Yellen said the economic disruption of the last five years has left millions of workers sidelined, discouraged or stuck in part-time jobs, which is not captured in the unemployment rate alone.

In such an environment "there is no simple recipe for appropriate policy," Yellen said, arguing for a "pragmatic" approach that allows officials room to evaluate data as it arrives without committing to a preset policy path.

At the same time, she said, the labor market may in fact be tighter than it seems and the Fed may have to raise rates sooner and more quickly than expected. Higher interest rates tend to boost the allure of the dollar.

"On balance, the speech was a very gradual and nuanced move away from Yellen's overtly dovish policy stance in the past toward a more balanced view on the economy and on monetary policy," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

European shares dipped 0.27 percent after the Russian convoy of aid trucks entered eastern Ukraine without Kiev's permission.

The MSCI world equity index, which tracks shares in 45 nations, was down 0.29 percent.

Worries about the euro zone slipping toward deflation and near-zero growth pinned German 10-year government bond yields firmly below 1 percent on Friday. [GVD/EUR]

In commodities trading, spot gold rose 0.22 percent to $1,280 an ounce, after losing 1.3 percent on Thursday as rate rise expectations sent it plowing through key support levels to a two-month low.

Oil eased as the strong dollar and plentiful supplies continued to pressure prices. October Brent crude ended down 36 cents to $102.27 a barrel. U.S. crude lost 31 cents to end at $93.65 a barrel

(Reporting by Michael Connor in New York; Additional Reporting by Daniel Bases, Gertrude Chavez-Dreyfuss, Akane Otani and Chuck Mikolajczak in New York; Editing by Dan Grebler)

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