By Dion Rabouin
NEW YORK (Reuters) - Stock on major markets fell worldwide on Friday while the U.S. dollar strengthened as investors began to price in a greater likelihood that the Federal Reserve will raise interest rates this year.
European share markets posted their biggest weekly loss in two months, while oil snapped a winning streak as traders took profits following one of the year's strongest rallies that analysts called fundamentally unjustified.
Comments from Fed policymakers in recent days that suggest a bias towards raising benchmark U.S. interest rates have pushed investors to re-examine minutes from the U.S. central bank's most recent meeting in July, analysts said.
"The focus this week has been on the Fed minutes, which on balance to this reader seemed to suggest that there was a greater likelihood of an interest rate increase before the end of the year, and markets have not been counting on Fed action in that horizon," said Carl Tannenbaum, chief economist for Northern Trust in Chicago.
"Even though the minutes came out on Wednesday afternoon, I suspect that participants are still digesting their contents and updating their expectations."
Also Read
The Dow Jones industrial average fell 52.28 points, or 0.28 percent, to 18,545.42, the S&P 500 lost 5.75 points, or 0.26 percent, to 2,181.27 and the Nasdaq Composite dropped 8.91 points, or 0.17 percent, to 5,231.24.
New York Fed President William Dudley on Thursday lauded recent strong gains in U.S. employment after saying Tuesday the Fed could raise rates as soon as next month. San Francisco Fed chief John Williams called on Thursday for the bank to return to monetary tightening "sooner rather than later." Investors are now looking to an annual meeting of central bankers from around the world in Jackson Hole, Wyoming, next week, at which Fed Chair Janet Yellen is expected to speak, for clues on the course of monetary policy.
"There is a bit of uncertainty over the Fed's decision and Yellen's speech next week is motivating investors to take some money off the table," said Peter Cardillo, chief market economist at First Standard Financial in New York.
The U.S. benchmark S&P 500 stock index is up 7 percent this year. Its recent run to record highs has been partly supported by expectations that the Fed will continue to keep rates low, as well as some upbeat earnings and economic news. European shares <.STOXX> fell 0.8 percent on the day and nearly 2 percent for the week, their biggest weekly loss since mid-June. All major sectors in Europe were in the red. Trading volumes were thin amid a summer lull in the United States and Europe. Thursday's session was the quietest across Europe's stock exchanges in nearly three months, according to Thomson Reuters data.
A gauge of stock markets around the world fell 0.4 percent. Brent crude fell 0.4 percent to $50.69 a barrel, ending a six-day run of gains, while WTI light crude was little changed at $48.27.
The dollar firmed against six major world rivals given revived Fed rate-hike expectations. The dollar index rose 0.4 percent to 94.545, moving away from eight-week lows touched on Thursday.
Fed funds futures prices show investors now see a greater than 50 percent chance of a rate hike before year-end, according to CME Group's FedWatch tool.
U.S. Treasury prices fell as traders locked in recent gains ahead of next week's government debt supply and the Jackson Hole meeting. U.S. 10-year Treasury notes fell 15/32 in price to yield 1.588 percent.
(Reporting by Dion Rabouin in New York; Additional reporting by Tanya Agrawal in Bangalore and Vikram Subhedar in London; Editing by Bernadette Baum and James Dalgleish)
Disclaimer: No Business Standard Journalist was involved in creation of this content