US stocks fall and dollar climbs after strong data

By Harry Robertson

LONDON (Reuters) - U.S. stocks gave up earlier gains and the dollar and bond yields climbed on Tuesday after data showed the U.S. economy remained strong at the end of last year, potentially further limiting the scope for Federal Reserve rate cuts.

European stocks held their gains after rallying on Monday following a report saying President-elect Donald Trump's aides are considering narrower tariffs than previously thought.

U.S. services sector activity accelerated in December, beating expectations, and a measure of prices surged, the Institute for Supply Management's survey data showed.

Separate figures showed U.S. job openings unexpectedly increased in November, but a softening in hiring pointed to a slowing labor market.

After opening higher, at 10.20 a.m. ET the S&P 500 was down 30.15 points, or 0.50%, to 5,945.23 and the Nasdaq Composite fell 191.61 points, or 0.96%, to 19,671.68. The Dow Jones Industrial Average fell 72.43 points, or 0.17%, to 42,634.13.

Investors in late 2024 lowered their expectations for rate cuts from the Fed this year as the labor market remained robust and growth showed few signs of slowing.

They went further on Tuesday, anticipating around 33 basis points of cuts this year, down from closer to 40 before the data, according to LSEG data.

U.S. 10-year Treasury yields , which set the tone for borrowing costs around the world, rose more than 7 basis points to 4.69%, the highest since May.

The Treasury is set to sell $39 billion of 10-year notes on Tuesday and $22 billion in 30-year bonds on Wednesday.

Europe clung to its gains, with the continent-wide STOXX 600 index last up 0.2%. It rose 0.95% on Monday following the report on tariffs, which caused shares of automakers to rally.

Germany's DAX was up 0.4% while Britain's FTSE 100 fell 0.3%.

TRUMP DENIES TARIFF REPORT

The Washington Post reported on Monday that Trump aides were exploring tariff plans that would be applied to every country but only cover certain sectors deemed critical to national or economic security.

Stocks rallied and the dollar fell on the report, but Trump's subsequent denial reversed some of the initial moves.

Japanese and Chinese shares climbed overnight.

The dollar index rose after Tuesday's data and was last up 0.2% at 108.54 after dropping 0.55% in the previous session from around its highest level in two years.

"Against that (tariff) policy uncertainty, you still have investors positioned in a very extreme and pro-U.S. way, particularly in equities, but also in the dollar, obviously less so in bonds," said Michael Metcalfe, head of macro strategy at State Street (NYSE:STT ).

"I think someone's got to give there."

The euro fell 0.3% to $1.0363 and sterling dipped 0.2% to $1.2487 after both climbed around 0.8% the previous day.



Euro zone price growth ticked up to 2.4% year-on-year in December on higher energy costs, from 2.2% a month earlier. Inflation in Germany, the euro zone's biggest economy, climbed more than expected to 2.8%.

(This story has been corrected to say that the 30-year auction is on Wednesday, not Tuesday, in paragraph 9)

Source: Investing.com