NEW YORK World equity markets pared losses on solid U.S. retail sales data on Tuesday, even as safe-haven Treasury debt rose, spurred by a looming battle in Washington over a limit on the government's borrowing.
The yen was on track for its biggest one-day gain against the dollar in eight months as a warning from a Japanese minister about the disadvantages of excessive yen weakness prompted investors to pare back bearish bets.
Most U.S. stocks rebounded in a late-day rally after data showed retail sales in December increased 0.5 percent, following a 0.4 percent rise the prior month, beating economists' expectations for a gain of only 0.2 percent.
Consumer discretionary stocks led the broad S&P 500 index higher, followed by financial stocks. Technology shares fell, led by a 3.1 percent decline in Apple shares.
"The retail sales numbers were really good, much better than expected this morning and that is helping the whole retail group," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.
"The bulls are clearly trying to take control of this market and hold it up here. There is clearly buying on any of the dips."
Investors were cautious for most of the session as Republican opposition in Congress to increase the $16.4 trillion (10.20 trillion pounds) debt ceiling raises the risk that the United States could default on its debt in coming months.
A warning by Federal Reserve Chairman Ben Bernanke on the economic effects of any failure to agree to a higher ceiling, a Treasury prediction that the limit could be hit by mid-February and President Barack Obama's tough negotiating stance hit equity markets, which have gained since the New Year.
"There's a little bit of a risk-off trade," said Thomas Graff, fixed-income portfolio manager at Brown Advisory in Baltimore. "It looks like stocks reacting negatively to the wrangling over the U.S. debt ceiling, so Treasuries are higher."
Still, the likelihood of the United States not raising the debt ceiling and declaring default is "very low," Graff said.
The Dow Jones industrial average ended up 27.57 points, or 0.20 percent, at 13,534.89. The Standard & Poor's 500 Index was up 1.66 points, or 0.11 percent, at 1,472.34. The Nasdaq Composite Index was down 6.72 points, or 0.22 percent, at 3,110.78.
Weak results from software company SAP pulled technology stocks down in Europe, with Germany's benchmark DAX index falling to a 2013 low, but major indices edged higher.
SAP took the most points off the FTSEurofirst 300 index of top European shares and also hit the STOXX Europe 600 technology index, which fell 2.1 percent to make it the region's worst-performing equity sector.
The Eurofirst 300 index of top shares closed 0.04 percent higher at 1,160.22 after a late-day rebound.
The MSCI all-country world equity index was up a slight 0.1 percent to a 20-month high of 350.28.
World equity markets and corporate bonds have risen sharply this year on a widely held view that the Federal Reserve's supportive monetary policies will boost the U.S. economic recovery while keeping returns on safe-haven assets such as Treasuries low.
The benchmark 10-year U.S. Treasury note was up 4/32 in price to yield 1.8343 percent.
A contraction in New York state manufacturing for a sixth straight month in January had weighed on stocks.
Other U.S. data on Tuesday showed inflation pressures remained muted, with wholesale prices declining for a third straight month in December.
The yen gained against the dollar, rebounding from four straight days of losses that pushed it to a 2-1/2 year low as a warning from a Japanese minister about the disadvantages of excessive yen weakness prompted investors to shed bearish bets.
The dollar was down 0.79 percent at 88.75 against the yen. The euro was down 0.55 percent at $1.3308.
Brent crude oil fell $1.58 to settle t $110.30, while U.S. light sweet crude oil fell 86 cents to settle at $93.28 per barrel.
U.S. COMEX gold futures for April delivery settled up $14.50 at $1,683.90.
(Reporting by Herbert Lash, Editing by Dan Grebler)