U.S. yields hit five-month highs; stocks, dollar fall

By Richard Leong

NEW YORK (Reuters) – Long-term U.S. Treasury yields rose on Tuesday to their highest level this year as investors reassessed their view on the global economy, while stock prices around the world fell on worrisome U.S. trade data and news on Asian factory activity.

The stand-off between Greece and its creditors also curbed appetite for equities.

Oil prices reached fresh 2015 highs as protests disrupted exports from an eastern Libyan port, while gold gained on safety bids stemming from anxiety in other markets.

The two-week selloff in Treasuries, German Bunds and British gilts stemmed from factors including heavy debt supply, reduced pessimism about Europe, and easing downward pressure on U.S. and European inflation.

“You are seeing the worst of disinflation over. You are also seeing oil prices stabilizing,” said Bill Stone, chief investment strategist at PNC Asset Management Group in Philadelphia.

There was no major shift in investor conviction on whether the Federal Reserve would raise interest rates at its September meeting, but a less gloomy global backdrop caused some investors to consider such a move as more likely than two weeks ago.

The dollar’s fall, however, suggested doubts persist about a September rate hike following mixed U.S. data. The United States posted its biggest monthly trade gap in nearly 6-1/2 years in March, while a private gauge on the services sector unexpectedly improved in April.

In late U.S. trading, the Dow Jones industrial average <.DJI> closed down 142.53 points, or 0.79 percent, to 17,927.87, the S&P 500 <.SPX> ended 25.01 points, or 1.18 percent, lower to 2,089.48 and the Nasdaq Composite <.IXIC> finished down 77.60 points, or 1.55 percent, to 4,939.33. [.N]

The MSCI world equity index <.MIWD00000PUS>, which tracks shares in 45 nations, fell 0.9 percent, to 435.09.

The pan-European FTSEurofirst 300 <.FTEU3> equity index shed 1.6 percent at 1,555.46, erasing an earlier gain spurred by an almost 7 percent jump in UBS <UBSG.VX> shares.

Tokyo’s Nikkei <.N225> eked out a 0.06 gain despite data from China, Taiwan and Japan which showed factory activity contracting.

While worries intensified about Asia’s biggest economies, the European Commission said euro zone economic growth would be stronger than previously expected this year.

Prices of major government bonds declined in an ongoing market pullback. Safe-haven German Bunds’ 10-year yields <DE10YT=RR> touched 0.535 percent, the highest since January. [GVD/EUR]

This has also led investors to dump U.S. Treasuries, sending the 30-year bond yield <US30YT=RR> to 2.934 percent, the highest in five months and above its 200-day moving average. The 30-year yield was last 2.892 percent.

In the currency market, the mixed U.S. data spurred selling in the dollar, especially against the euro. The single currency <EUR=> was up 0.44 percent at $1.1193.

Brent crude <LCOc1> settled up $1.07, or 1.61 percent, at $67.52 a barrel. U.S. crude <CLc1> settled up $1.47 or 2.49 percent at $60.40.

Spot gold prices <XAU=> rose $6.1 or 0.51 percent, to $1,193.80 an ounce.

(Reporting by Lionel Laurent, Sudip Kar-Gupta in London; Editing by Nick Zieminski and Meredith Mazzilli)

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