NEW YORK (Reuters) - Stocks fell and U.S. Treasury prices gained on Friday after Secretary of State John Kerry made a forceful case for the United States to punish Syrian President Bashar al-Assad as he released evidence the Syrian government used chemical weapons to attack civilians.
Kerry's remarks, which were televised, stoked concerns that the United States was ready to launch a military strike and added to a subdued tone of trading ahead of a three-day U.S. holiday weekend. Limp data on U.S. consumer income, spending and inflation contributed to the day's tone.
Arguing that it was essential to show those who would use chemical weapons in the future that the world will not let Syria get away with it, Kerry said the United States was joined by the likes of France, "our oldest ally," in its determination to respond to the attack, which he said killed more than 1,400 people in Damascus last week.
The concerns about a U.S. military strike made investors reluctant to bet against safe-haven U.S. debt and helped send the dollar to a four-week high.
"People are uneasy not knowing what's going on, and it will probably be in the background at least so long as it continues," said John Carey, portfolio manager at Pioneer Investment Management in Boston, which has about $200 billion of assets under management.
"Syria isn't the crisis in and of itself, but if we do take military action, there could be repercussions that will hurt us," he said. "You never know, with military action, the kind of consequences you'll see. It's always very risky."
U.S. stocks slipped, with the S&P 500 index ending August with its worst monthly showing in over a year. A weak market tone was set early in the day by data showing U.S. consumer spending eked out only a 0.1 percent rise in July and inflation was tame, with a price index for consumer spending edging up 0.1 percent in the month.
The Dow Jones industrial average was down 37.79 points, or 0.25 percent, at 14,803.16. The Standard & Poor's 500 Index was down 5.83 points, or 0.36 percent, at 1,632.34. The Nasdaq Composite Index was down 30.44 points, or 0.84 percent, at 3,589.87.
In the Treasuries market, the yield on the 10-year note eased to 2.7747 percent.
The dollar index, which measures the greenback's value against six major currencies, was at 82.067, not far from a four-week high of 82.263 touched earlier. The dollar is a traditional safe harbor for investors.
Among emerging currencies, the Indian rupee has tumbled 10.4 percent against the dollar so far this month, and looks to be heading for its largest monthly fall ever, according to Thomson Reuters data.
India is seeking support from other emerging market countries for a coordinated intervention in offshore foreign exchange markets after a currency rout the past three months, but at least one critical partner, Brazil, said it is not involved in such planning at this time.
Most major equity markets and many emerging currencies looked set to end the week and the month sharply lower as investors pull out of riskier assets in anticipation that the Federal Reserve, which next meets on September 17-18, will begin to cut back on its stimulus measures and on some form of Western intervention against Syria.
A Reuters asset allocation poll of 54 fund managers across the United States, Europe and Japan showed that investors had increased cash holdings to their highest level in a year, while also lifting exposure to equities and cutting bond positions.
SYRIA UNCERTAINTY MIRRORED IN OIL
Conflicting signs on possible military action against Syria were mirrored in the trajectory of oil prices on Friday.
On Friday afternoon, oil prices fell, rebounded, then fell again as traders watched the U.S. secretary of State's televised address for signs of what the Obama administration might do.
Fears of a broader conflict in the Middle East had eased slightly after Britain said it would not join any military action, although France said it still supported a move to punish Syria's government for an apparent poison gas attack on civilians.
The easing of concern didn't last even as Russia and China remained opposed to any move and China cautioned against any U.N. Security Council action until the investigation is complete.
Brent crude oil settled lower, near $114 a barrel, off highs of $117 set earlier this week when military action seemed imminent. U.S. crude was down $1.13 to $107.69 a barrel.
"The situation is still volatile," said Alex Yap, an analyst at energy consultancy FGE in Singapore. "If the U.S. decides to attack, prices could be pushed higher."
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MSCI's world equity index, which tracks shares in 45 countries, fell 0.3 percent on Friday, closing out its worst week since June 21.
European shares felt the pressure from a drop in oil stocks with the broader STOXX Europe 600 index down 0.9 percent, taking weekly losses to around 2.4 percent.
In other commodity markets, gold fell 0.9 percent to below $1,400 an ounce, moving away from a 3-1/2-month high hit Wednesday when fears over Syria prompted a flight to safety.
(Reporting by Nick Olivari and Ryan Vlastelica; editing by Bernadette Baum and Leslie Adler)
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