NEW YORK (Reuters) - U.S. bond yields retreated from two-year highs on Tuesday on revived safe-haven bids as prices on most world stock exchanges fell to the lowest level in over a month on concerns that less U.S. monetary stimulus will hamper global growth.
Wall Street stocks bucked the downdraft in global equities, with the Standard & Poor’s 500 index rebounding from a four-day losing streak, its longest so far this year.
The dollar fell against major currencies, hitting a six-month low against the euro on uncertainty whether the U.S. Federal Reserve will reduce its bond purchases, though the weaker U.S. currency helped steady gold prices.
Speculation whether the Fed might decide to shrink its bond purchases at its policy meeting next month sent oil prices lower before they recovered somewhat on news of fighting in Libya, which raised fears about oil exports from the Middle East.
“The ongoing meltdown in regional currencies is starting to negatively influence all risk assets and, for the moment, is helping create a bid for the Treasury market,” said John Briggs, U.S. rate strategist at RBS Securities in Stamford, Connecticut.
The Federal Open Market Committee, the U.S. central bank’s policy-setting group, will release the record of its July 30-31 meeting on Wednesday. Traders anticipate the minutes will contain clues on whether the Fed is on track to reduce its $85 billion monthly purchases of U.S. bonds at its September 17-18 meeting.
Anxiety that U.S. policymakers would dial back the Fed’s third round of quantitative easing, or QE3, has been accompanied by worries the Fed is looking to raise short-term interest rates, even though Fed officials have assured markets that would not happen for a long time.
The yield on 10-year Treasury notes fell to 2.834 percent, down 6 basis points from late on Monday, when it touched 2.90 percent, a level not seen since late July 2011.
Treasury yields are benchmarks for domestic mortgage rates and other long-term borrowing costs. Some economists have cautioned that the surge in yields since May would slow the housing recovery, auto sales and other rate-sensitive sectors in the world’s largest economy.
German government bonds, Europe’s equivalent benchmark, moved in lock step with U.S. yields, easing to 1.839 percent after topping 1.924 percent on Monday. That was the highest level since March 2012.
The spike in Treasury yields has exerted downward pressure on stocks since last week.
Wall Street stocks halted their longest losing streak in 2013 as major retailers reported positive profits and outlooks, signalling resilience among U.S. consumers who are dealing with meagre wage growth and higher taxes this year.
“We got some better news from the specialty retail sector. That perked stocks up a bit, showing the American consumer is not dead,” said Jack Ablin, chief investment officer at BMO Private Bank in Chicago.
Electronics retailer Best Buy Co’s shares jumped 13 percent to $34.80, while department store operator J.C. Penney Co gained 6 percent at $14.01.
The Dow Jones industrial average closed down 7.75 points, or 0.05 percent, at 15,002.99. The Standard & Poor’s 500 Index finished up 6.29 points, or 0.38 percent, at 1,652.35. The Nasdaq Composite Index ended up 24.50 points, or 0.68 percent, at 3,613.59.
Europe’s top shares ended down 0.8 percent at 1,214.78 after hitting their lowest level in more than two weeks, while emerging stocks fell 1.26 percent to 932.92 to hit a six-week low, though both indexes had recovered slightly from their session lows.
Tokyo’s Nikkei index fell 2.6 percent.
Broad equity losses weighed down the MSCI world share index. It was down 0.2 percent at 370.20 after touching its lowest since July 11 before Wall Street’s gains helped pare much of its initial decline.
With lingering uncertainty about whether the Fed would cut stimulus soon, the dollar index, which measures the greenback against a basket of currencies, fell 0.4 percent after touching its lowest level in more than two months.
The euro strengthened 0.65 percent versus the dollar at $1.3422, below its six-month high of $1.3452 set earlier, while the dollar fell 0.39 percent against the Japanese yen at 97.17 yen.
If the Fed signals it will scale back QE3 later this year, the dollar will likely strengthen because fewer bond purchases would lift U.S. yields, raising the appeal of U.S. investments.
In commodities trade, copper futures in London rose 0.23 percent to $7,322.50 a tonne, erasing early losses.
Spot gold prices rose 0.46 percent to $1,371.76 per ounce, hovering near a two-month high set on Monday.
Brent crude prices rebounded from an early decline, closing up 25 cents or 0.23 percent at $110.15 a barrel, pressured by the Fed speculation but supported by the loss of Libya’s oil exports as well as concerns that continuing unrest in Egypt could spread and interfere with supply. U.S. oil for October delivery was off $1.71, or 1.6 percent, at $105.15.
(The story corrects settlement levels for U.S. Oct. oil futures in last paragraph)
Additional reporting by Luciana Lopez, Rodrigo Campos, Angela Moon and Wanfeng Zhou in New York and Marc Jones in London; Editing by Dan Grebler and Nick Zieminski