Dollar jumps after U.S. data; bond prices slide

NEW YORK Tue Sep 2, 2014 4:31pm EDT

1 of 2. Traders work on the floor of the New York Stock Exchange September 2, 2014.

Credit: Reuters/Brendan McDermid

NEW YORK (Reuters) - The dollar rose to its highest this year against the yen on Tuesday on strong U.S. manufacturing and construction data, while the euro slipped to a 12-month low on speculation the European Central Bank will move toward looser monetary policy.

U.S. oil prices fell more than $3 a barrel, leading shares in the energy sector to account for almost half the decline in the S&P 500. Volume was light and the S&P closed slightly lower.

U.S. manufacturing hit a nearly 3-1/2 year peak in August and construction spending rebounded strongly in July, the latest signs of U.S. economic vigor.

The data lifted the dollar almost 0.8 percent against the Japanese yen, pushing it above the 105 yen mark for the first time since the first week of this year. The dollar last traded at 105.10 yen, up 0.72 percent on the day.

U.S. Treasuries US10YT=RR fell further on the data, with the 10-year note US10YT=RR off 21/32 in price to yield 2.4211 percent.

The euro EUR= sagged in early trade on bets ECB President Mario Draghi will do more to help a wobbly euro zone economy. But the currency later recouped its losses, up 0.01 percent at $1.3128.

Investors are waiting to see what Draghi does when ECB policymakers meet on Thursday, said Ken Polcari, director of the NYSE floor division at O'Neil Securities in New York.

"If (the market) becomes disappointed on Thursday because Draghi does not announce something more accommodative or stimulative, then you'll see European markets under pressure and flow over into the U.S. markets, at least temporarily," he said.

Few investors expect immediate, major steps but most see looser ECB policy in the future as the euro zone fails to grow due to austerity measures and conflict in Ukraine.

MSCI's all-country world index .MIWD00000PUS of 45 countries fell 0.1 percent while the pan-European FTSEurofirst 300 index .FTEU3, which has risen nearly 7 percent from its mid-August low, closed down 0.07 percent at 1,375.93.

Wall Street closed mixed after a choppy trading session in which the economic data failed to drive prices much.

"The market is probably pricing in stronger numbers on the economic side but it's still very much positive," said James Liu, global market strategist at JPMorgan Funds, in Chicago.

"We are expecting to see stronger economic numbers, the market is certainly expecting that, and as long we get them we can do quite well above 2,000 on the S&P 500," Liu said.

The Dow Jones industrial average .DJI closed down 30.89 points, or 0.18 percent, at 17,067.56 and the S&P 500 .SPX fell 1.09 points, or 0.05 percent, to 2,002.28. But the Nasdaq Composite .IXIC rose 17.92 points, or 0.39 percent, to 4,598.19.

Brent crude fell almost to $100 a barrel, pressured by worries about slowing oil demand growth in China and Europe, a strong U.S. dollar and ample supplies.

Brent crude for October delivery LCOc1 settled down $2.45 at $100.34 a barrel. U.S. crude CLc1 fell $3.08 from Friday's close to settle at $92.88 a barrel. There was no trading in the United States on Monday because of the Labor Day holiday.

(Reporting by Herbert Lash; Additional reporting by Marc Jones in London; Editing by Meredith Mazzilli, Dan Grebler and Chizu Nomiyama)

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