NEW YORK (Reuters) - The U.S. dollar rose on Wednesday on expectations for stronger U.S. economic growth, while stocks fell broadly as home resales dropped sharply.
The 10-year U.S. Treasury yield declined, but worries in Europe about rescue plans for shaky Italian banks drove the spread between the benchmark and 10-year German Bund yields to the widest ever.
On Wall Street, shares fell across the board with the S&P 500 posting its largest daily drop since Oct. 11.
Data showed contracts to buy previously owned U.S. homes fell in November to their lowest level in nearly a year, a sign that rising interest rates could be weighing on the housing market.
“There was enough bad news during the day” to pull the market lower, said Keith Bliss, senior vice-president at Cuttone & Co in New York referring to the housing data.
He said U.S. Secretary of State John Kerry’s comments that Israel’s building of settlements on occupied land was endangering Middle East peace made some traders nervous and exacerbated the decline.
The Dow Jones Industrial Average .DJI fell 111.36 points, or 0.56 percent, to 19,833.68, the S&P 500 .SPX lost 18.96 points, or 0.84 percent, to 2,249.92 and the Nasdaq Composite .IXIC dropped 48.89 points, or 0.89 percent, to 5,438.56.
The pan-European FTSEurofirst 300 index .FTEU3 edged up 0.33 percent, while MSCI's gauge of stocks across the globe .MIWD00000PUS fell 0.44 percent.
Emerging market stocks rose 0.77 percent.
Earlier, MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 0.5 percent while Japan's Nikkei .N225 closed little changed.
The dollar .DXY rose on continued bets that the Federal Reserve will have to raise rates next year to keep up with inflation and growth brought by a planned fiscal stimulus from the incoming Trump administration.
“This is just a continuation of the trend” of dollar strength, said Axel Merk, president and chief investment officer of Palo Alto, California-based Merk Investments.
“People are trying to be aligned with the winning positions.”
The dollar index .DXY gained 0.23 percent. The euro fell 0.43 percent to $1.041 and the British pound dropped 0.39 percent to $1.2222.
Euro zone bond yields fell across the board as concerns about the strength of a rescue plan for Italian banks and normal year-end caution pushed investors to the safety of government debt.
Germany’s 10-year yields DE10YT=TWEB hit their lowest in seven weeks at 0.181 percent. That in turn widened the yield gap to U.S. Treasuries, which act as the world’s benchmark borrowing rate. The spread was last at 235.25 basis points.
Benchmark U.S. Treasury yields fell to their lowest levels in two weeks, however, after a well-bid 5-year note auction enticed buyers into U.S. government debt.
The 10-year U.S. Treasury yield hit a session low at 2.503 percent. Benchmark 10-year notes US10YT=RR last rose 15/32 in price to yield 2.5099 percent.
Oil prices edged up at settlement for a fourth consecutive session, edging close to their highest levels in 1-1/2 years, but they turned negative in post-settlement trade after API data showed a surprise build in U.S. crude inventories.
A looming supply cut from many major producers is expected to give crude prices support.
U.S. crude CLc1 last fell 0.4 percent to $53.67 a barrel and Brent LCOc1 traded at $55.95, down 0.3 percent on the day.
Oil has surged about 50 percent in 2016 even after plunging in January to its lowest in more than a decade.
Reporting by Rodrigo Campos, additional reporting by David Gaffen, Dion Rabouin and Sam Forgione; Editing by Nick Zieminski and Richard Chang