By Lewis Krauskopf
NEW YORK (Reuters) - Stocks around the world sold off on Thursday, while the U.S. dollar gained, pressuring oil and other commodities, as investors absorbed the possibility that the U.S. Federal Reserve will raise interest rates in the near term.
Oil prices sharply pared losses as supply worries offset the drag from the dollar.
Financial markets were adjusting to the minutes of the Fed April meeting, released on Wednesday, in which the U.S. central bank opened the door to a rate hike in June, catching investors off guard.
Speaking on Thursday, New York Fed President William Dudley said the U.S. economy could be strong enough to warrant an interest rate increase in June or July.
"We are on track to satisfy a lot of the conditions" for a rate increase, Dudley said.
Traders were projecting a 26-percent chance the Fed would raise rates in June, according to the CME FedWatch tool, up from 15 percent expected on Tuesday. For a rate hike in July, expectations stood at nearly 50 percent.
"The Fed seems to think the economy is quite a bit stronger than some market pundits and maybe investors in general think," said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland.
"Not only is there the concern that they will, in fact, do damage to the economy, but also one more step in removing the easy money that clearly has been a benefit for rising asset prices over the last few years," McCain said.
The Dow Jones industrial average <.DJI> was down 90.15 points, or 0.51 percent, at 17,436.47, the S&P 500 <.SPX> lost 9.52 points, or 0.46 percent, at 2,038.11 and the Nasdaq Composite <.IXIC> dropped 33.66 points, or 0.71 percent, at 4,705.46.
The Dow and S&P touched roughly two-month lows before somewhat paring losses. Wal-Mart's
Financials <.SPSY>, which tend to benefit in a rising rate environment, shed 0.8 percent after posting their best day in a month on Wednesday.
The pan-European FTSEurofirst 300 index <.FTEU3> ended down 1.2 percent, as commodity-linked names fell. European travel and leisure stocks <.SXTP> fell 1.5 percent after EgyptAir jet carrying 66 passengers and crew from Paris to Cairo disappeared.
MSCI's gauge of global stocks <.MIWD00000PUS> dropped 1 percent, falling for a third straight session.
The global index is off more than 2 percent for 2016. Concerns about the global economy persist and investors are responding to diverging policies between the Federal Reserve and other major central banks.
The dollar <.DXY> rose 0.2 percent against a basket of currencies, adding to gains after hitting its highest point since late March on Wednesday.
Crude oil prices fell, hurt by the dollar's surge. A stronger dollar makes commodities denominated in greenback more expensive for holders of other currencies.
Losses were limited by worries about more supply outages from Nigeria's main crude oil terminal.
U.S. crude
U.S. Treasury prices rose, rebounding from Wednesday's selloff. Yields, which move inversely to prices, had climbed to their highest in about two months for shorter-dated maturities after the Fed's minutes were released.
Benchmark 10-year U.S. Treasuries > rose 11/32 in price to yield 1.8452, down from 1.883 percent late on Wednesday.
Spot gold > was down 0.3 percent, and touched a three-week low.
(Additional reporting by Dion Rabouin and Barani Krishnan in New York, Marc Jones in London, Editing by Catherine Evans and Nick Zieminski)
