By Sinéad Carew
(Reuters) - Wall Street stocks finished lower while bond yields and the dollar rose on Thursday as investors worried about the potential for aggressive U.S. policy tightening as other central banks around the world moved to reduce support.
The benchmark 10-year U.S. Treasury yield jumped, following two days of declines, after a flurry of U.S. economic data such as retail sales and jobless claims and the European Central Bank's announcement of less aggressive than expected tightening plans.
New York Fed President John Williams said on Thursday that the U.S. Federal Reserve should reasonably consider raising interest rates by a half percentage point at its next meeting in May, which was seen as a further sign that even more cautious policymakers are on board with bigger rate hikes.
This was after the ECB said it plans to cut bond purchases - known as quantitative easing - this quarter, then end them at some point in the third quarter.
Investors also eyed hefty rate hikes by New Zealand's central bank and the Bank of Canada, and a surprise rate hike by the Bank of Korea as well as policy tightening by the Monetary Authority of Singapore.
These moves all exacerbated bond yield increases and stock price declines, according to Mona Mahajan, senior investment strategist at Edward Jones who also noted that Thursday's data showed the Fed's need to act fast.
"All systems are go for the Fed to move pretty aggressively," said Mahajan. "Generally it's a global battle to fight inflationary pressures."
U.S. stocks had gained on Wednesday on hopes that price increases could be peaking. But Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut, saw Thursday's trading action as a sign that there was little conviction behind those hopes.
The Dow Jones Industrial Average fell 113.36 points, or 0.33%, to 34,451.23 while the S&P 500 lost 54 points, or 1.21%, to 4,392.59 and the Nasdaq Composite dropped 292.51 points, or 2.14%, to 13,351.08.
After the pan-European STOXX 600 index rose 0.67% and MSCI's gauge of stocks across the globe shed 0.71%.
"Today's probably the right reaction," said Sameer Samana, senior global market strategist at Wells Fargo (NYSE:WFC) Investment Institute in St. Louis. "Until inflation is under control, it's not under control. There's too much uncertainty."
Samana also pointed to the tone of the ECB's comments about threats to growth heading in the wrong direction will risks to inflation are "to the upside."
Meanwhile in forex, the euro plunged to a two-year low against the dollar as comments from ECB President Christine Lagarde were viewed as a sign that the bank was in no rush to raise interest rates.
The dollar index rose 0.524%, with the euro down 0.52% to $1.0828.
The Japanese yen weakened 0.21% versus the greenback at 125.94 per dollar, while Sterling was last trading at $1.3076, down 0.30% on the day.
Benchmark 10-year notes last fell 36/32 in price to yield 2.8275%, from 2.689% late on Wednesday.
Along with the moves by Seoul and Singapore, New Zealand's central bank raised interest rates by a hefty 50 basis points on Wednesday, the biggest hike in over two decades. The Bank of Canada also raised rates by the same level, making its biggest single move in more than two decades and flagging more hikes to come.
GRAPHIC: The rate hiking cycle is off https://fingfx.thomsonreuters.com/gfx/mkt/akvezjbkwpr/rates1404.PNG
Oil prices rose on Thursday after an early decline as investors covered short positions ahead of the long weekend and on news that the European Union might phase in a ban on Russian oil imports.[0/R]
U.S. crude rose 2.02% to $106.36 per barrel and Brent was at $111.41, up 2.42% on the day.
Gold eased on Thursday after the dollar strengthened and yields rose as investors geared up for U.S. interest rate hikes, but safe-haven demand triggered by the Ukraine crisis and mounting inflation kept bullion on track for a weekly gain.
Spot gold was last down 0.3% to $1,971.40 an ounce.