GLOBAL MARKETS-Stocks slip as banks weigh on Wall St; Treasuries gain on steady inflation

Thu Jan 16, 2014 3:46pm EST

* S&P 500 retreats from record; bank profits disappoint

* U.S. dollar skids but uptrend seen intact

* Oil falls below $107 as supply outlook improves

By Angela Moon

NEW YORK, Jan 16 (Reuters) - A measure of global equity markets edged lower on Thursday, weighed by a decline on Wall Street following a slew of disappointing bank earnings, while the dollar fell, although the dip was viewed as temporary.

On Wall Street, the S&P 500 pulled back from record levels as financial stocks led the way lower.

After a lackluster start to the new year on concerns stock valuations may be over-extended, the S&P 500 had rallied 1.6 percent in the prior two sessions to set its first record high since Dec. 31.

Given last year's 30-percent gain for the index, the market does not need much of a catalyst for selling, said Uri Landesman, president of Platinum Partners in New York.

"I think you could see a ratchet downward. It's pricing in just a lot of rosiness and a lot of enthusiasm, and the odds are that the news isn't going to be good enough to sustain that," he said.

The MSCI all-country world index was down 0.1 percent at 406.65.

The dollar fell against the euro and the yen, pressured by data showing a jump in U.S. continuing jobless claims but losses were viewed as temporary after two days of gains as the greenback's uptrend remained intact.

Treasuries prices gained after inflation data came in as expected and amid strength in German government debt and overnight demand for safe-haven U.S debt.

Data showed U.S. consumer prices rose by the most in six months in December but were in line with expectations, after producer price data on Wednesday surprised some investors by rising more than expected. That eased some inflation concerns, while an unexpected drop in Australian employment boosted demand for Treasuries overnight and as German bunds also rallied.

"Global inflation is very tame and not problematic, and that's been a factor that's allowed yields to fall this year," said Kim Rupert, managing director for fixed income analysis at San Francisco-based Action Economics.

Benchmark 10-year Treasuries were last up 11/32 in price to yield 2.845 percent, down from 2.884 percent late on Wednesday. Thirty-year bonds gained 18/32 in price to yield 3.774 percent, down from 3.806 percent.

The dollar fell to 104.28 against the yen, erasing a rebound that came after the greenback was battered by the surprisingly weak December U.S. non-farm payroll report at the end of last week. On Monday, the dollar fell to a four-week low of 102.85 against the yen.

The Australian dollar, meanwhile, tumbled against the U.S. unit to its lowest since August 2010 after a surprise fall in Australian employment raised the possibility of another cut in interest rates from the Reserve Bank of Australia.

BANKS WEIGH ON WALL ST

Financials were the biggest drag on Wall Street after both Citigroup Inc and Goldman Sachs reported quarterly profits hit by lower bond trading revenue, with Goldman's earnings falling 21 percent and Citigroup's missing expectations.

The results followed fairly positive reads on the sector from JPMorgan Chase & Co, Bank of America and Wells Fargo & Co.

Goldman's stock slid 1.7 percent to $175.74 and ranked as one of the Dow's biggest declines, while Citigroup dropped 4.1 percent to $52.74. The S&P financial sector index fell 0.7 percent, the biggest loser among the S&P 500 sectors.

"This group is very tied to the economy, and it makes it difficult to argue that we could see a higher GDP ahead, given these," said Paul Nolte, managing director at Dearborn Partners in Chicago. "The earnings picture, along with some recent data, suggests we haven't made it out of the very slow growth rate that we've been seeing."

The Dow Jones industrial average was down 81.14 points, or 0.49 percent, at 16,400.80. The Standard & Poor's 500 Index was down 4.23 points, or 0.23 percent, at 1,844.15. The Nasdaq Composite Index was down 0.12 points, or 0.00 percent, at 4,214.76.

European equities edged lower to steady just below a 5-1/2-year high, hurt by a string of losses in the retail sector after corporate reports, though mining stocks offers some support.

In commodities markets, Brent crude oil fell below $107 a barrel as expectations of more supply from the Middle East and North Africa outweighed news of a large drop in U.S. crude stockpiles.

Huge volumes of crude from Iran and Libya have been blocked by political and civil disputes, but both countries may soon be able to send more into markets that are already well supplied.

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