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U.S. dollar, Treasury yields, stocks fall on Trump currency comments

A pedestrian is reflected in a window displaying a board with stock prices at the Australian Securities Exchange (ASX) in Sydney, Australia March 6, 2017. REUTERS/Steven Saphore

By Sinead Carew

NEW YORK (Reuters) - The U.S. dollar turned lower along with Treasury yields and stocks on Wednesday after U.S. President Donald Trump said the dollar is getting too strong and that he would prefer the Federal Reserve keep interest rates low.

Trump, in an interview with the Wall Street Journal, also said he would not label China a currency manipulator.

"The market had a big reaction, but I think it was an overreaction because (Trump) may just be hedging his bets by making sure that the American public realizes he’s not backing down on trade. It’s just that he may not think now is the right time to brand China a currency manipulator," said Kathy Lien, managing director, at BK Asset Management in New York.

"The dollar’s already under pressure, so I think any excuse for further pressure is likely to bring the greenback even lower.”

The U.S. dollar index (.DXY), which measures the greenback against a basket of six other major currencies, was down 0.5 percent at its lowest since late March.

The dollar was down 0.4 percent against the yen (JPY=), which is a favourite in uncertain times due to Japan's position as the world's largest creditor nation. The dollar fell 1.2 percent against the yen on Tuesday.

U.S. Treasury yields fell, with benchmark yields hitting a near five-month low due to Trump's comments favouring low interest rates. Benchmark 10-year Treasury yields were 3 basis points lower at 2.268 percent after hitting 2.259 percent, which was the lowest since Nov. 17.

The Dow Jones Industrial Average (.DJI) fell 59.44 points, or 0.29 percent, to end at 20,591.86, the S&P 500 (.SPX) lost 8.85 points, or 0.38 percent, to 2,344.93 and the Nasdaq Composite (.IXIC) dropped 30.61 points, or 0.52 percent, to 5,836.16.

On Wall Street, defensive sectors were the biggest gainers in keeping with preferences for safety.

While a weaker dollar would help profits at multinational companies, stocks turned lower after Trump's comments, as he added "another wild card," according to Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.

“We all know markets like fairly stable situations," said Tuz. "Is this just another offhand comment from Donald Trump or does it really mean something and is it the start of a policy that you’ll see introduced soon?”

Gold (XAU=) was up 0.9 percent at $1,286.10 an ounce, after jumping 1.6 percent on Tuesday.

Trading Wednesday was also heavily influenced by rising U.S. tensions with Russia, North Korea and Syria after U.S. missile strikes in Syria last week and the moving of U.S. warships towards the Korean Peninsula.

Investor optimism had briefly improved during a joint press conference in Moscow held by U.S. Secretary of State Rex Tillerson and Russia's Foreign Minister but the signs of optimism ebbed afterwards as it became clear officials did not seem any closer to agreement on Syria.

Oil prices ended lower after reversing earlier gains due to a report on U.S. crude stockpiles. Oil futures turned negative after eight straight sessions of gains on the U.S. inventory data suggesting persistent oversupply.[O/R]

Global benchmark Brent crude (LCOc1) settled down 0.7 percent at $55.86 a barrel, while U.S. crude (CLc1) settled down 0.5 percent at $53.11.


(Additional reporting by Richard Leong, Dion Rabouin and Lewis Krauskopf in New York, Yashaswini Swamynathan in Bengaluru and Wayne Cole in Sydney; Editing by Alison Williams and James Dalgleish)