By Sinéad Carew and Harry Robertson
NEW YORK/LONDON (Reuters) -MSCI's global equity gauge fell on Friday while bond yields climbed as investors waited for clues about the future path for interest rates from next week's U.S. Federal Reserve meeting.
In U.S. Treasuries, benchmark 10-year yields rose to a three-week high and were on track for their fifth-straight daily gain as investors bet that Fed Chair Jerome Powell will signal a pause in policy easing after a widely expected 25-basis-point rate cut next Wednesday.
The U.S. central bank is grappling with inflation staying stubbornly above its 2% annual target. Data released on Thursday showed higher-than-expected U.S. producer prices in November.
Friday's data showed U.S. import prices barely rose in November as increases in food and fuel costs were partially offset by decreases elsewhere, thanks to a strong dollar.
"The market is assuming that Powell cuts next week and then pauses. I think that's the right assumption because we're seeing a tension between the inflationary data and the labor-market data," said Matt Rowe, head of portfolio management and cross-asset strategies at Nomura Capital Management.
While bets on a December rate cut are almost unanimous, CME Group's Fedwatch tool implies just two cuts in 2025.
“They have to take into account that in an economy where inflation is showing itself at this point to be sticky, and you're very highly likely going to get further fiscal stimulus, deregulation, and some aspect of tariffs coming through, there's just no way you can validate why you keep cutting in that instance,” said Tom Fitzpatrick, head of global market insights at R.J. O'Brien in New York.
While a rally in chipmaker Broadcom provided a big boost for Wall Street, only the Nasdaq managed a small gain.
The Dow Jones Industrial Average fell 86.06 points, or 0.20%, to 43,828.06, the S&P 500 fell 0.16 point, or 0.00%, to 6,051.09 and the Nasdaq Composite rose 23.88 points, or 0.12%, to 19,926.72.
Weekly results were also a mixed bag with the S&P 500 falling 0.64% and the Nasdaq rising 0.34% while the Dow fell 1.82%.
MSCI's gauge of stocks across the globe fell 2.27 points, or 0.26%, to 866.14. Europe's STOXX 600 index closed down 0.53% earlier, breaking a three-week winning streak, as investors sought clarity on Europe's rate policy amid concerns about economic growth and a potential trade war.
The yield on benchmark U.S. 10-year notes rose 7.5 basis points to 4.399%, from 4.324% late on Thursday. The 30-year bond yield rose 5.7 basis points to 4.6052%.
The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose 5.9 basis points to 4.245%, from 4.186% late on Thursday.
In currencies, the dollar index eyed its biggest weekly gain in a month on the prospect of slower U.S. rate cuts.
On the day, the index, which measures the greenback against a basket of currencies, fell 0.02% to 106.94. The euro rose 0.32% to $1.0501, clawing back some recent losses in the wake of the European Central Bank's rate cut on Thursday.
Against the Japanese yen, the dollar strengthened 0.66% to 153.62, having risen all week as traders scaled back bets on a Bank of Japan rate hike next week.
Sterling weakened 0.4% to $1.2619 after a surprise contraction in UK economic activity.
In energy markets, oil prices settled at a three-week high on expectations more sanctions on Russia and Iran could tighten supplies and that lower U.S. and European interest rates could boost fuel demand.
U.S. crude settled up 1.8%, or $1.27 at $71.29 a barrel and Brent settled at $74.49 per barrel, up 1.5% or $1.08 on the day.
In precious metals, spot gold fell 1.2% to $2,649.04 an ounce.
