By Chuck Mikolajczak and Herbert Lash
NEW YORK (Reuters) - A gauge of world stock markets was flat on Wednesday as U.S. data that raised concerns about a slowing economy was offset by a solid start to earnings season, while sterling was volatile as negotiations on a Brexit deal continued.
European stocks pulled back slightly from their strongest closing high in more than a year as clashing headlines on Britain's last-minute efforts to forge a divorce deal with the European Union left investors hanging on the outcome.
On Wall Street, stocks retreated after monthly retail sales data for September showed a decline for the first time in seven months, raising concerns that softness in the manufacturing sector was starting to spread to the broader economy.
MSCI's gauge of stocks across the globe <.MIWD00000PUS> traded at break-even.
"Retail sales were definitely on the weaker side and given that the consumer is one of the key pillars holding up the U.S. economy, any weakness in consumer indicators is obviously a sign of concern," said Ellen Hazen, portfolio manager F.L. Putnam in Wellesley, Massachusetts.
Data later in the session showed U.S. business inventories were unexpectedly flat in August, which suggested inventory investment could also drag on third-quarter economic growth.
Concerns about the trade dispute between the United States and China also weighed. The U.S. House of Representatives on Tuesday passed legislation related to pro-democracy protests in Hong Kong, prompting China to warn in response that bilateral relations would be damaged if the measures became law.
Losses were offset by a solid start to earnings season. Bank of America <BAC.N> shares rose 1.98% following its quarterly results.
Earnings for S&P 500 companies are expected to show a decline of 3% for the quarter, according to Refinitiv data, down from 5.1% growth expected at the start of the year. Excluding energy, the growth rate is a negative 0.7%.
"They legitimately are coming in better than expected so far, not by leaps and bounds, but incrementally, yes they are. This is not just expectations having been set really low, at least from the earnings estimate standpoint," said Hazen.
The Dow Jones Industrial Average <.DJI> fell 22.82 points, or 0.08%, to 27,001.98. The S&P 500 <.SPX> lost 5.99 points, or 0.20%, to 2,989.69 and the Nasdaq Composite <.IXIC> dropped 24.52 points, or 0.3%, to 8,124.18.
Sterling <GBP=> was volatile as negotiators worked to clinch a last-minute Brexit deal before an EU summit on Thursday.
GRAPHIC: European Q3 earnings - https://tmsnrt.rs/33yhkBj
French President Emmanuel Macron said on Wednesday a deal with Britain on its departure from the European Union was being finalized and could potentially be agreed on at Thursday's summit.
The pound had strengthened by more than 5% over the past five sessions as investors rushed to reprice the prospect of a deal being agreed before Britain's scheduled departure date of Oct. 31.
Sterling <GBP=> was last at $1.2823, up 0.29% on the day.
The dollar index <.DXY> fell 0.28%, with the euro <EUR=> up 0.39% to $1.1074. The Japanese yen <JPY=> strengthened 0.08% versus the greenback at 108.79 per dollar.
GRAPHIC: Global assets in 2019 - http://tmsnrt.rs/2jvdmXl
The benchmark 10-year U.S. Treasury note <US10YT=RR> rose 7/32 in price to push its yield down to 1.7465%.
Hopes of a Brexit breakthrough took the pan-European STOXX 600 <.STOXX> to its highest close since May 2018 on Tuesday, but the index closed down 0.1%. London's exporter-laden FTSE 100<.FTSE>, which tends to fall when the pound gains, lagged themost of regional indices with a 0.6% decline.
Germany's DAX <.GDAXI> edged up 0.3% while the pan-regional FTSEurofirst 300 <.FTEU3> of leading companies slid 0.08%.
Companies listed on the STOXX 600 <.STOXX> index are now expected to report a decline in third-quarter earnings of as much as 3.7%, worse than the 3% expected a week ago, according to Refinitiv data through Tuesday.
GRAPHIC: Global currencies vs. dollar - http://tmsnrt.rs/2egbfVh
In commodities, oil rose about 1% on a weaker dollar and due to signs the Organization of the Petroleum Exporting Countries and allied producers will continue to curb supplies in December.
Brent crude <LCOc1>, the global benchmark, rose 68 cents to settle at $59.42 a barrel. U.S. crude <CLc1> gained 55 cents to settle at $53.36.
In emerging markets, Turkey's Halkbank <HALKB.IS> saw its shares drop 4.1% after U.S. prosecutors charged the state-owned lender with taking part in a multibillion-dollar scheme to evade U.S. sanctions on Iran, which the company said were part of sanctions leveled against Ankara over its military operation in Syria. MSCI's gauge <.MSCIEF> of emerging market stocks rose 0.56%.
Gold rose on concerns Washington's stance on Hong Kong could hamper trade negotiations.
U.S. gold futures <GCcv1> settled up 0.7% to $1,494 an ounce.
GRAPHIC: MSCI All Country Wolrd Index Market Cap - http://tmsnrt.rs/2EmTD6j
(Reporting by Herbert Lash; Editing by Sonya Hepinstall)