By Alden Bentley and Stephen Culp
NEW YORK (Reuters) -Wall Street shares pulled back from record highs hit early on Thursday in sympathy with rallying overseas indexes, as Treasury yields shook off soft U.S. data and rose anticipating new supply next week.
The dollar firmed, as higher U.S. yields widened differentials with non-dollar rates that are trending lower. It drew closer to the 160 yen area that prompted Tokyo to intervene in late April to support its currency.
The Dow Jones Industrial Average was the only major index that held gains. The S&P 500 and Nasdaq extended their string of intraday all-time highs before reversing, and the Nasdaq ended a seven-session streak of record closing highs.
Disappointing housing starts and building permits data, along with a jobless claims report suggested a gradual cooling in the labor market, appeared to make the case that the Fed's restrictive policy is having its intended effect.
"The weaker-than-expected economic data is suggesting that the higher-for-longer interest rates are achieving the Fed's objectives," said Greg Bassuk, chief executive officer at AXS Investments in New York. "These signs of a slightly slowing economy are going to be welcomed by the Fed as they consider a move toward interest rate cuts."
This, combined with dovish sentiment expressed by the Bank of England as it held off easing before the looming British general election, and an interest rate cut by the Swiss National Bank, seemed to give the Fed some maneuvering room over the timing of its first interest rate cut.
Minneapolis Federal Reserve President Neel Kashkari said while the U.S. economy has proven resilient, he sees some softening around the edges.
Even so, expectations for a rate cut as soon as September have faded a bit. Financial markets are currently pricing in a 57.9% chance of a 25-basis-point rate cut in September, down from 61.1% a week ago, according to CME's FedWatch tool.
The Dow rose 0.77% to close at 39,134.96, the S&P 500 lost 0.25% to 5,473.22, and the Nasdaq Composite lost 0.79% to close at 17,721.59.
Wall Street's rally has been driven by enthusiasm over artificial intelligence, led by chipmaker Nvidia (NASDAQ:NVDA), which recently claimed the mantle as the world's most valuable company by market cap. Nvidia also reversed morning gains and was down about 2%.
TECH, REAL ESTATE BOOST EUROPEAN STOCKS
European shares were given a boost by tech and real estate, and by a rally in Swiss equities after the central bank continued to loosen monetary policy.
The STOXX 600 index rose 0.93%, while Europe's broad FTSEurofirst 300 index rose 0.90%.
MSCI's gauge of stocks across the globe hit a record high but closed off 0.15% at 803.89.
Emerging market stocks lost 0.06%. MSCI's broadest index of Asia-Pacific shares outside Japan closed 0.16% lower, while Japan's Nikkei rose 0.16%.
U.S. Treasury yields initially backed away from their highs following the economic data, before resuming their climb.
The market is looking ahead to next week's auction of about $183 billion in U.S. two-, five- and seven-year Treasury notes. Investors tend to sell Treasuries ahead of auctions to push up the yield before buying them back at a lower price, a practice called concession.
The yield on benchmark U.S. 10-year notes rose 3.7 basis points from late Tuesday to 4.254%. The 30-year bond yield rose 3.7 basis points to 4.3908%. The 2-year note yield, which typically moves in step with interest rate expectations, rose 2.7 basis points to 4.7308%.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, gained 0.4% to 105.63, while the euro shed 0.34% to wrap up the day at $1.0703.
Against the Japanese yen, the dollar strengthened to its highest since April 29 and was up 0.51% at 158.89 yen.
Sterling fell to a five-week low against the dollar and was last trading 0.43% lower at $1.2662.
"When we think about the strength of the dollar it feels as though for the first time in a while we have a diversion in global monetary policy ... the parade of Fed speakers we have in the U.S. continues to talk about being patient and needing more time," said Art Hogan, chief market strategist at B Riley Wealth in New York.
"The dollar stands out but its got some pretty weak competition in Japan so I think that’s exacerbating the move."
U.S. crude gained 0.74% to $82.17 a barrel and Brent rose to $85.71 per barrel, up 0.75% on the day.
Spot gold added 1.36% to $2,359.22 an ounce. U.S. gold futures gained 1.01% to $2,354.00 an ounce.
In cryptocurrencies, bitcoin gained 0.27% at $65,029.00. Ethereum declined 0.47% at $3,534.8.