U.S. shares lower, dollar struggles on policy debate

NEW YORK Tue Sep 24, 2013 4:16pm EDT

1 of 8. Traders work on the floor of the New York Stock Exchange August 28, 2013.

Credit: Reuters/Brendan McDermid

NEW YORK (Reuters) - Stocks on Wall Street struggled on Tuesday, with benchmark indexes swinging between losses and muted gains to finally turn lower, amid a lack of clarity on U.S. fiscal and monetary policies, while major currencies held in tight ranges.

Positive U.S. homes data helped to offset some of the negative sentiment. U.S. home prices rose 0.6 percent in July on a seasonally adjusted basis, the S&P/Case Shiller composite index of 20 metropolitan areas showed on Tuesday. That was a slightly slower pace than forecast, but a separate report from the U.S. Federal Housing Finance Agency showed U.S. home prices rose 1 percent in July from June.

But a looming political showdown in Washington over budget talks that threaten to shut down the U.S. government on October 1 was the bigger backdrop to trading.

And Fed policymakers have been on the offensive this week explaining the reasons behind the central bank's surprise decision last week not to reduce its asset purchases from the current $85 billion monthly pace.

That decision has left investors both encouraged that support for the economy would continue for a while longer, but also in some doubt over whether they had overestimated the solidity of the U.S. economic recovery.

"There are conflicting reports on the internal discussion in the Fed," said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh. "There's a lot of information and that makes the Fed look confused."

The Dow Jones industrial average .DJI was down 62.68 points, or 0.41 percent, at 15,338.70. The Standard & Poor's 500 Index .SPX was down 4.19 points, or 0.25 percent, at 1,697.65. The Nasdaq Composite Index .IXIC was up 2.97 points, or 0.08 percent, at 3,768.26.

It was the fourth straight session of declines in the Dow and S&P 500.

The MSCI world equity index .MIWD00000PUS was down 0.1 percent, with European shares supported by telecoms .EU. The pan-European FTSEurofirst 300 index .FTEU3 closed up 0.2 percent at 1,258.18.

The dollar struggled for gains after a string of comments from Federal Reserve policymakers suggested the U.S. central bank was wary of jeopardizing a still-fragile economic recovery by scaling back its stimulus too early, but that its plan to do so by the end of the year was intact.

New York Fed President William Dudley, in an interview with CNBC broadcast on Tuesday, said that he "wouldn't want to rule out" a reduction in the Fed's bond-buying program later this year, adding that the Fed expected slower economic growth now than it did in June.

Against the Japanese currency, the dollar was down 0.1 percent at 98.74 yen. But the euro was down 0.2 percent at $1.3472 helping push the dollar to a 0.1 percent gain against a basket of currencies.

The benchmark 10-year U.S. Treasury yields edged down to 2.66 percent, off a near two-year high of 3.0 percent touched earlier this month.

GERMAN GROWTH

A reading on German business sentiment came in slightly below expectations, though it showed the euro zone's biggest economy on a firm growth path, causing the euro to fall against the dollar. Signs that the European Central Bank stood ready to keep supporting the economy also weighed on the euro.

The Munich-based Ifo think tank said business morale improved slightly in September, reaching the highest level in 17 months, with the key export sectors looking strong.

"The further rise in German Ifo business sentiment confirms that the economy is recovering, but we continue to expect growth to be reasonably sluggish," said Ben May, a European economist at Capital Economics.

The euro held near the weaker levels reached on Monday when European Central Bank President Mario Draghi said he was ready to inject more liquidity into banking markets if necessary to support the economy.

Those remarks were backed up by ECB policymaker Ewald Nowotny on Tuesday, who said any withdrawal of current support would have to be implemented extremely carefully.

COMMODITIES SLIDE

In commodity markets, gold traded around $1,322.76 an ounce as investors fretted over what the Fed will do next.

The story was much the same in copper futures which fell 1.6 percent to $7,128 per ton, down from last week's peak of $7,368.00.

Worries that money printing by central banks to buy assets will stoke inflation have helped boost the price of metals like gold, usually seen as an inflation hedge.

An easing in geopolitical tensions was the main factor driving oil markets, as signs of a reconciliation between Iran and the West over Iran's nuclear policies raised hopes of greater supplies.

Iran has agreed to new talks on its nuclear program with top diplomats from six world powers, including U.S. Secretary of State John Kerry, raising hopes that Tehran's relations with the United States could thaw.

"Geopolitical tensions are reducing and oil output is rising, so these two factors are driving oil futures to moderate," IHS analyst Victor Shum said.

November U.S. crude was off 19 cents at $103.40 a barrel, down for a fourth day, and Brent crude for November fell 63 cents to $108.79 per barrel.

(Reporting by Nick Olivari; Editing by Nick Zieminski)

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