Bets on hawkish Fed lift dollar, U.S. bond yields

NEW YORK (Reuters) - Bets the Federal Reserve will signal its intention to raise interest rates next week spurred the dollar toward a ninth straight week of gains on Friday and pushed short-dated U.S. Treasuries yields near their highest in over three years.

As the bond and currency markets made sizable moves this week, major stock markets worldwide pulled back from their recent peaks on profit-taking and jitters about the effect of higher U.S. borrowing costs on the global economy.

Nervousness about a Scottish vote next week on a split from the United Kingdom and tension between Russia and the West over Ukraine also weighed on stocks and other riskier investments, analysts said.

Oil prices in London recovered to above $97 a barrel from two-year lows struck on Thursday due to rising supply and softening demand.

Gold prices hit 7-1/2 month lows on a strengthening dollar.

"We do seem to have reached a tipping point both on expectations for (U.S.) interest rate rises next year and the dollar," said Simon Derrick, head of currency research at Bank of New York Mellon in London.

The U.S. economy has shown resilience after a surprise contraction in the first quarter. Friday's data on domestic retail sales showed a solid 0.6 percent increase in August. That supported views the U.S. central bank is preparing to end its ultra-loose monetary policy launched to halt the deep recession caused by the global credit crisis.

Expectations of a shift in Fed policy come as other major central banks have or might provide more policy easing. Last week, the European Central Bank cut interest rates and said it will embark on quantitative easing help the sagging euro zone. China and Japan are expected to inject more stimulus as the world's second- and third-biggest economies face slowing growth.

In early trading, the Dow Jones industrial average was down 14.14 points, or 0.08 percent, at 17,034.86. The Standard & Poor's 500 Index was down 4.61 points, or 0.23 percent, at 1,992.84. The Nasdaq Composite Index was down 9.50 points, or 0.21 percent, at 4,582.30.

The FTSEurofirst 300 index of top European shares was down 0.1 percent at 1,381.97. Tokyo's Nikkei rose 0.25 percent to end at its highest close in eight months.

The MSCI world equity index, which tracks shares in 45 nations, slipped 0.34 percent to 426.70.

The dollar index, a measure of the greenback's value against a basket of six major currencies, was last up 0.02 percent at 84.31. It was on course for its longest streak of weekly gains since the first quarter of 1997, amounting to a 5 percent increase for the current winning streak.

A 2 percent rise on the week took the U.S. currency to a six-year high of 107.39 yen. Against the euro it gained 0.7 percent on the week, last at $1.2943. [FRX/]

The greenback firmed against the pound ahead of next Thursday's Scottish referendum vote, which polls show too close to call. Sterling was 0.1 percent lower on the day at $1.6236, above a 10-month low of $1.6051 set on Wednesday. [GBP/]

U.S. two-year Treasuries yields edged up 1 basis point at 0.568 percent, within striking distance of a three-plus year high of 0.5900 percent reached in July. [US/]

The benchmark 10-year U.S. Treasury note was down 20/32, the yield at 2.605 percent.

Short-dated yields on most other major government debt also rose, with two-year German Schatz yields trading at minus 0.054 percent.

Brent crude for October delivery was last down 87 cents or 0.89 percent at $97.21 a barrel. U.S. crude was last down 27 cents or 0.29 percent at $92.56 per barrel. [O/R]

Spot gold prices fell $8.04 or 0.65 percent, to $1,232.45 an ounce. [GOL/]

(Reporting by Richard Leong; Additional reporting by Patrick Graham in London; Editing by Dan Grebler)

WhatsAppFacebookTwitterLinkedinBeloudBluesky