By Lewis Krauskopf
NEW YORK (Reuters) - Oil prices fell on Wednesday after a surprise build in U.S. crude inventories, while the dollar gave up recent gains as investors awaited direction on a potential interest rate hike.
Wall Street weakened in morning trading after oil turned lower, as energy shares dropped, with stocks losing steam after the Nasdaq and S&P 500 again set record highs on Tuesday.
The Dow Jones industrial average fell 40.95 points, or 0.22 percent, to 18,492.1, the S&P 500 lost 6.5 points, or 0.3 percent, to 2,175.24 and the Nasdaq Composite dropped 26.05 points, or 0.5 percent, to 5,199.43.
"Low volume is fairly standard at this time of the year and August tends to be a very choppy month," said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey. "If you have low volumes, it could skew the market in any direction, and that's what you have today."
With bond yields low in developed economies as central banks maintain accommodative monetary policies, investors have sought equities for yield.
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MSCI's all-world index slipped 0.1 percent after rising to a fresh one-year high. MSCI's emerging markets index gained 0.4 percent, up for a fifth straight session and hitting its highest in a year.
"For the most part international markets are continuing to outperform the U.S. in recent days ... particularly the emerging markets," said Jim Paulsen, chief investment strategist at Wells Capital Management in Minneapolis.
The pan-European FTSEurofirst 300 index slipped 0.3 percent after five days of gains. Germany's DAX shed 0.4 percent, after hitting a 2016 high a day earlier, as utility E.ON tumbled after posting a net loss.
Oil prices fell after the second-biggest weekly draw in U.S. gasoline this summer was countered by an unseasonable growth in crude stockpiles.
Crude inventories rose 1.1 million barrels in the week ended Aug. 5, compared with analysts' expectations for a decrease of 1.0 million barrels, the U.S. Energy Information Administration (EIA) said.
U.S. crude fell 2 percent to $41.90 per barrel, while benchmark Brent dropped 1.8 percent to $44.16 a barrel.
The dollar was 0.5 percent weaker against a basket of currencies. The greenback has retreated from gains in the wake of Friday's strong jobs report.
"It's been a fairly broad trend of dollar selling this week," said Vassili Serebriakov, FX strategist at Credit Agricole in New York.
More clarity about the U.S. economy's health and the next move on rates from the Federal Reserve could come with Friday's release of July retail sales and a speech by Fed Chair Janet Yellen later this month.
U.S. Treasury prices edged up in line with global bonds as limited economic data and concern about the continued effectiveness of central banks gave safe-haven U.S. government debt a modest bump.
The benchmark 10-year Treasury note was last up 6/32 in price to yield 1.526 percent.
(Additional reporting by Karen Brettell, Barani Krishnan and Dion Rabouin in New York, Yashaswini Swamynathan in Bengaluru and John Geddie in London; Editing by Alexander Smith and James Dalgleish)