Shares edge lower while dollar at eight-month highs ahead of Fed, U.S. data

A pedestrian is reflected on an electronic board showing the graph of the recent fluctuations of Japan's Nikkei average outside a brokerage in Tokyo

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A pedestrian is reflected on an electronic board showing the graph of the recent fluctuations of Japan's Nikkei average outside a brokerage in Tokyo June 19, 2014. REUTERS/Yuya Shino

By Angela Moon

NEW YORK (Reuters) - World equity markets fell on Tuesday while the dollar reached eight-month highs against the euro on expectations of positive U.S. economic data and a more hawkish tone from the Federal Reserve.

Wall Street closed lower, sending the all World benchmark down 0.2 percent after a weak outlook from U.S. package shipper United Parcel Service Inc weighed on investor sentiment and pressured transportation stocks.

Equity investors also showed reluctance to make bold moves ahead of U.S. economic news due this week, including a Federal Reserve meeting ending on Wednesday, GDP data on Wednesday and non-farm payrolls on Friday.

The Dow Jones industrial average fell 70.48 points or 0.42 percent, to 16,912.11, the S&P 500 dropped 8.96 points or 0.45 percent, to 1,969.95, and the Nasdaq Composite eased 2.21 points or 0.05 percent, to 4,442.70.

U.S. Treasuries prices increased after a new sale of five-year notes drew solid demand, and the U.S. yield curve flattened to five-year lows.

Long-dated Treasuries have been gaining against short- and intermediate-dated debt as investors reach for higher yields at the long end and worry about the Federal Reserve raising interest rates next year.

The yield spread between U.S. five-year notes and 30-year bonds flattened on Tuesday to 153 basis points, the lowest since 2009.

Thirty-year bond yields fell as low as 3.22 percent, the lowest since June 7 of last year.

"The theme has really been the flattening," said Justin Lederer, an interest rate strategist at Cantor Fitzgerald in New York.

"Short and intermediates are starting to price in the Fed ultimately going as we get closer and closer, and the long end is seeing some very good duration buying," Lederer said.

The U.S. dollar hit eight-month highs against the euro and advanced against the yen and Swiss franc. The U.S. dollar index, which measures the dollar against a basket of six major currencies, was last up 0.22 percent at 81.202

Rouble-traded Russian stocks gained despite new fighting in Ukraine and expectations of more EU sanctions. The dollar-denominated RTS index was down slightly.

The European Union agreed to impose broad sanctions against Russian oil companies, banks and defence companies, by far the strongest international action yet over Moscow's support for rebels in eastern Ukraine.

Oil prices fell, with U.S. crude leading the decline as a refinery fire in Kansas curbed demand for benchmark WTI, while concerns over export disruptions stemmed losses for global marker Brent.

U.S. crude (CLc1) settled at $100.97 a barrel, down 70 cents after touching an intraday low of $100.37, the lowest since mid-July.

(Reporting by Angela Moon; Editing by Steve Orlofsky)

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