GLOBAL MARKETS-Wall Street shakes off rate concerns; dollar hits 3-week peak

Thu Mar 20, 2014 5:03pm EDT

* Better-than-expected factory and labor data helps Wall St

* MSCI emerging equities index falls more than 1 pct

* Yields on 2-year Treasuries near six-month highs (Updates with U.S. markets close)

By Angela Moon

NEW YORK, March 20 (Reuters) - Global equity markets edged lower on Thursday as investors positioned for a speedier rise in U.S. interest rates than previously thought, but Wall Street reassessed its view on a possible rate hike and also got a boost from data that pointed to an improving economy.

The dollar rallied to a three-week high against other major currencies while yields on U.S. two-year Treasuries yields hovered near six-month highs.

In her first press conference as chair of the Federal Reserve, Janet Yellen on Wednesday indicated that the first increase in interest rates could come in the first half of 2015.

Yellen said there would be a "considerable period" between the end of the Fed's bond-buying stimulus and the first rate increase, adding the period could be as little as six months. Markets had widely expected a hike in the second half of 2015.

The MSCI world equity index fell 0.3 percent while the MSCI emerging equities index fell 1.1 percent.

But Wall Street ended higher, with the S&P 500 closing up 0.6 percent. Data on factory activity in the U.S. mid-Atlantic region and on jobless claims boosted sentiment. While stocks had skidded in late trade on Wednesday following Yellen's comments about the timing of a rate hike, Wall Street investors took a second look on Thursday.

"Her point is, it could be six months because if the data dictates it they will do it. But I don't see anything in the data today that is demonstrating we have a runaway economy here," said Stephen Massocca, managing director of Wedbush Equity Management LLC in San Francisco.

The Philadelphia Federal Reserve Bank's business activity index rose far more than expected in March after a contraction in February. Separately, the Labor Department reported that U.S. jobless claims rose by 5,000 in the latest week, less than expected.

"The March survey is another shred of evidence suggesting the economy may rebound from the winter slowdown attributable to inclement weather," said Andrew Wilkinson, chief market analyst at Interactive Brokers LLC in Greenwich, Connecticut.

Financial shares, which are tied to the pace of economic growth, were among the day's biggest gainers, with the S&P financial sector index up 1.7 percent.

After the close, the Federal Reserve said 29 out of 30 major banks met the minimum hurdle in its annual health check.

JPMorgan Chase & Co gained 3.1 percent to $60.11 rising above $60 for the first time since April 2000. Citigroup Inc advanced 2.6 percent to $50.22.

European shares finished steady after falling as much as 1 percent earlier on concerns about when the Fed may hike rates. The FTSEurofirst 300 index ended 0.06 percent higher at 1,305.87 points.

DOLLAR STRENGTHENS

The U.S dollar index, which tracks a bundle of currencies traded against the greenback, rose for a second straight day and added nearly 0.2 percent to stand at 80.190, a level last touched on Feb. 27.

The dollar, whose strength this year was one of the big bets of many banks in January, has struggled so far in 2014, weighed down by a rough U.S. winter that at least temporarily cooled jobs growth. But the Fed's comments provided a new jolt.

"From this point forward, at least for the time being you will see a firmer tone to the dollar," said Stephen Gallo, a strategist with Canadian bank BMO in London.

Federal funds futures fell to their lowest level since January on Thursday. The April 2015 fed funds contract fell 1.5 basis points to 99.735, suggesting traders see a 51 percent chance the Fed will raise rates at its April 2015 meeting, up from 47 percent on Wednesday and nearly 34 percent a month ago, according to CME Group's FedWatch.

The yield on the two-year U.S. Treasury note was last at 0.4319 percent, up slightly from late Wednesday, when the yield was at 0.424 percent. The yield rose as high as 0.448 percent on Wednesday, its highest level since September. Bond yields move inversely to their prices.

The yield on the five-year U.S. Treasury note was last at 1.71 percent, up slightly from 1.7 percent late Wednesday and also hovering at Wednesday's high levels. The yield on the five-year bond surged 16 basis points on Wednesday to 1.712 percent, its largest one-day rise since July 2013.

Brent rose 60 cents to settle at $106.45 a barrel, after touching an intra-session high of $106.75. U.S. crude for May delivery, which will become the front-month contract Friday, settled 27 cents lower at $98.90 per barrel. (Editing by Leslie Adler)

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A tourist takes a plunge as she swims at Ngapali Beach, a popular tourist site, in the Thandwe township of the Rakhine state, October 6, 2013. Picture taken October 6, 2013. REUTERS/Soe Zeya Tun (MYANMAR - Tags: SOCIETY) - RTR3FOI0

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