GLOBAL MARKETS-Yields, sterling fall on ECB outlook; U.S. stocks dip

Wed May 14, 2014 1:03pm EDT

* BoE in no rush to raise rates; sterling hits 1-month low
vs dollar
    * Sources say ECB preparing rate cut, other measures next
month
    * Lower rate outlook fails to lift European shares
    * U.S. shares dip after record, defensives climb

 (Adds close of European stock markets)
    By Chuck Mikolajczak
    NEW YORK, May 14 (Reuters) - Benchmark government bond
yields in the U.S. and Germany dropped  on Wednesday after
sources told Reuters a European Central Bank rate cut next month
is "more or less a done deal," while U.S. stocks retreated
slightly from recent record highs.
    Euro zone sources said the ECB plans a package of policy
options, including measures aimed at boosting lending to small-
and mid-sized firms. 
    The ECB's dovishness has helped hold down yields on German
and U.S. debt, though the expectation is that stronger U.S.
growth will result in a boost to those yields over time. 
    Ten-year Bund yields hit a one-year low of 1.37 percent
 while the 10-year Treasury note's yield 
fell to 2.53 percent, the lowest since October. UK yields also
fell after the Bank of England said it was in no hurry to raise
rates.    
    "It reinforces the notion that from a global perspective
monetary policy is committed to lower (rates) for longer," said
Ian Lyngen, a senior government bond strategist at CRT Capital
in Stamford, Connecticut.
    Bonds rallied even as U.S. wholesale prices increased 0.6
percent in April, the most in 1-1/2 years, in a sign inflation
pressures may be creeping up. 
    The S&P 500 edged lower after setting its most recent record
closing high. Defensive sectors such as utilities and
telecoms were the best performers. 
    Oil continued its climb on fighting in Ukraine. U.S. crude
oil rose 81 cents to $102.52 a barrel, while Brent crude
 gained $1 to $110.24. 
    Sterling fell to a one-month low against the dollar after
the BoE said it was in no rush to raise rates and that Britain's
economic recovery is still in its early stages. 
    Sterling backed off a 16-month high against the euro. The
euro was up 0.4 percent against sterling at 81.70 pence
.
    Sterling was down 0.2 percent against the dollar at $1.6784
, while UK gilt yields fell to as low as 2.58 percent
.
    MSCI's all-country world index edged up 0.1
percent at 418.01 after reaching 418.24, its highest since
November 2007.
    The Dow Jones industrial average fell 56.58 points or
0.34 percent, to 16,658.86, the S&P 500 lost 3.19 points
or 0.17 percent, to 1,894.26 and the Nasdaq Composite 
dropped 7.56 points or 0.18 percent, to 4,122.60.
    The FTSEurofirst 300 index of leading European
shares closed virtually flat, down 0.37 point at 13689.38
points, close to Tuesday's six-year high. The index has risen
6.5 percent from lows in March. 

 (Additional reporting by Blaise Robinson in Paris and Karen
Brettell in New York; Editing by Susan Fenton and Meredith
Mazzilli; To read Reuters Global Investing Blog click here;
 for the MacroScope Blog click on blogs.reuters.com/macroscope;
 for Hedge Fund Blog Hub click on blogs.reuters.com/hedgehub)
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