By Lawrence Delevingne
(Reuters) -U.S. shares finished with minimal losses after a day of up and down trading as U.S. bond yields hit nine-month peaks and the dollar dipped following a U.S. credit downgrade.
Wall Street investors weighed another rise in Treasury yields with the latest batch of economic data and earnings. The Dow Jones Industrial Average fell 0.19% to 35,215, the S&P 500 lost 0.25% to 4,501 and the Nasdaq Composite dropped 0.1% to 13,959.
U.S. long-term Treasury yields hit nine-month highs on Thursday after employment and other economic data pointed to easing inflation, maintaining their high levels in the afternoon.
The yield on 10-year Treasury notes was up 10.7 basis points to 4.185%, while 30-year rates gained 13.8 basis points to 4.302%.
Gennadiy Goldberg, head of U.S. rates strategy at TD Securities, said that the yield moves were driven by large investor positioning amid relatively thin market liquidity, not fundamentals.
"The market has largely accepted that the Fed is either done or almost done with hikes," Goldberg told the Reuters Global Markets Forum on Thursday. "So now it's all about how long rates stay high and when the Fed cuts."
The dollar was little changed at $102.530 against major peers, near a one-month high. Strong private payrolls data added to signs of U.S. labor market resilience, with the nonfarm payrolls report due on Friday. [FRX/]
Investors also digested new U.S. Labor Department data on Thursday showing that the number of Americans filing new claims for unemployment benefits rose slightly last week, while layoffs dropped to an 11-month low in July. The government also said that U.S. worker productivity rebounded sharply in the second quarter, another boost to the improving inflation outlook.
EURO SHARES DOWN
European shares slipped 0.6%, the third straight day of losses, bruised by disappointing earnings reports and elevated U.S. bond yields.
UK shares, however, initially ticked higher after the Bank of England raised its key interest rate by a quarter of a percentage point to a 15-year peak of 5.25%. The index ended down 0.4%.
Sterling was flat after falling as much as 0.7% following the BoE move.
The BoE decision was closely watched for clues on how central banks globally will balance taming inflation and maintaining growth. The BoE's monetary policy committee (MPC) was split on the size of the rate hike.
"This split does leave a sense that the MPC itself is uncertain over what to do," said Stuart Cole, chief macro strategist at Equiti Capital, "and indeed of how much of a danger the UK economy is at risk of being tipped into recession as monetary policy is tightened ever further."
In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.2%, extending losses after a drop of 2.3% a day earlier.
Still, Chinese blue chips rose 0.9% after a private survey showed China's services activity expanded at a faster place in July.
Analysts at Morgan Stanley (NYSE:MS) downgraded China shares to equal weight, given the still-negative earnings revisions and weak return on equity and profit margins.
OIL UP, GOLD STEADY
Oil gained after dropping sharply from more than three-month highs in the previous session after Saudi state news agency SPA said that the country will extend a voluntary oil output cut of 1 million barrels per day for another month to include September.
U.S. crude rose 2.82% to $81.73 per barrel and Brent was at $85.29, up 2.51% on the day.
Gold was steady after data showing a deterioration in euro zone business activity triggered some safe-haven inflows, but bullion held near three-week lows on a stronger dollar and higher bond yields.
Spot gold ticked up 0.1% to $1,934 an ounce, held in check by a robust dollar and elevated bond yields.