GLOBAL MARKETS-Wall St recovers from weak open; bonds pare loss

Wed Dec 4, 2013 11:51am EST

* Wall Street higher after weak start on mixed data

* ADP jobs data adds to Fed taper talk, dollar claws higher

* European shares fall, world shares down for third day

* Aussie dollar hits three-month low

By Barani Krishnan and Marc Jones

NEW YORK/LONDON, Dec 4 (Reuters) - Stocks edged higher after a weak start on Wall Street on Wednesday, while Treasury yields rose after strong data on U.S. private-sector jobs growth and home sales raised expectations that the Federal Reserve will roll back its stimulus sooner than later.

The to-and-fro of when the Fed will begin to scale back its monthly bond-buying of $85 billion has dominated market headlines for months. This week's U.S. data run, ending in Friday's non-farm payrolls for November, may yet tip the balance again.

Polls of analysts and traders still point firmly to the U.S. central bank holding fire until March. But some stronger data has reheated speculation the Fed could move earlier, and that boosted U.S. Treasury yields, with the 10-year benchmark yield rising to 2.83 percent, the highest since mid-September.

Payroll processor ADP reported growth in private-sector U.S. jobs in November that was fastest pace in a year. ADP reported 215,000 new hires were added last month, versus analysts' expectations for 173,000.

"In the short term, the market is still worried about the most inevitable thing in our lifetime and that is tapering" of the Fed stimulus, said Mike Serio, regional chief investment officer for Wells Fargo Private Bank in Denver, Colorado.

The figures also caused the spread, or yield differential, between short- and long-dated bonds to widen. An increasing difference is generally considered a sign of positive expectations for economic growth.

"The market is pricing in a slightly higher probability of a tapering in December or January," said Mike Cullinane, head of Treasuries trading at D.A. Davidson in St. Petersburg, Florida.

The reaction in the stock market was mixed. Equities initially declined, threatening to extend three days of declines, after the ADP numbers. A weaker-than-expected report on service-sector growth tempered the market's concerns somewhat.

"The data continues to be mixed. The Fed is not tapering in December the way everyone started to chatter the last couple of days and the market now realizes that," said Ken Polcari, Director of the NYSE floor division at O'Neil Securities in New York.

Investors are worried that a reduction in stimulus will cause a sharp rise in interest rates, raising borrowing costs for mortgages and other loans that will pinch economic demand.

Wall Street's Dow Jones industrial average was up 21.52 points, or 0.14 percent, at 15,936.14. The Standard & Poor's 500 Index was up 2.41 points, or 0.13 percent, at 1,797.56. The Nasdaq Composite Index was up 10.23 points, or 0.25 percent, at 4,047.43.

World stocks were headed for a third straight day of losses, with Europe down again and Japan's Nikkei index recoiling from Tuesday's surprising six-year highs.

In commodities, benchmark Brent crude oil was flat after a two-day rally while gold remained firmly at a five-month low.

The pan-European FTSEEurofirst 200 was down 0.58 percent, and the MSCI world share index fell 0.3 percent. The Nikkei fell 2.2 percent in Tokyo overnight.

The benchmark 10-year U.S. Treasury note was down 16/32, its yield at 2.8315 percent.

U.S. bond prices recovered somewhat after the Institute for Supply Management said its services index fell to 53.9 last month from 55.4 in October, supporting the view that the Fed would hold any quick paring on its stimulus.

The dollar rose against the euro and the yen. The dollar gained 0.3 percent against the euro to $1.3552 after euro zone service sector data showed activity in Italy and France contracting in November but expanding in Spain and Germany.

The Australian dollar saw its biggest fall since July, hitting a three-month low of $0.9025 after data showed its economy running more slowly than expected.

MSCI's emerging market index marked a third day in the red, while the Indonesian rupiah weakened 0.9 percent to 11,975 rupiah per dollar after earlier falling to 12,000 to match a near five-year low touched last week.

In oil, benchmark Brent crude initially jumped to above $113 a barrel ahead of this week's OPEC meeting before falling to below $111 on the ADP jobs numbers. It turned flat later, trading at around $112.

Gold, which like stocks has benefited from the U.S. stimulus because of inflation fears, traded near five-month lows of $1,226 an ounce.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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