* Wall Street falls with volatility expected
* 10-year Treasuries yields rise above 2.50 percent
* Dollar continues gains against euro, yen
* Crude drops, gold bounces back
By Leah Schnurr
NEW YORK, June 21 Equities weakened on Friday,
while Treasuries yields hit their highest levels in almost two
years in the wake of the Federal Reserve's plans to withdraw the
stimulus that has fueled equities this year.
Markets are adjusting to the Fed's plan laid out earlier in
the week for the central bank to scale back its asset purchases
later this year if the U.S. economy keeps improving as expected.
This has roiled markets around the world since Chairman Ben
Bernanke outlined the timeline on Wednesday, with interest rates
rising and equities markets selling off.
Easing fears about an immediate banking crisis in China
helped make for a calmer tone, but short-term funding rates
there remain elevated, especially for smaller lenders.
U.S. stocks fell in late morning trading and 10-year
Treasuries yields rose above 2.50 percent, their highest level
since August 2011. The dollar rose and was headed for its
biggest weekly gain in almost a year.
MSCI's broad world stock index, which tracks
shares in 45 countries, was off 0.7 percent, and Europe's broad
FTSE Eurofirst 300 index provisionally ended down 0.7
"There is a supply of money waiting to step back in, but a
big move down forces people to at least pause," said Rick
Meckler, president of investment firm LibertyView Capital
Management in Jersey City, New Jersey.
Tokyo was an exception to the weaker trend, with the
Japanese stock market up 1.7 percent, but emerging
markets remained under stress.
The quarterly expiration and settlement of June U.S. equity
options and futures contracts later on Friday is seen likely to
contribute to volatility for the session.
About $14 billion is expected to change hands in index
rebalancing-related trading toward the session's close,
according to Credit Suisse, which could further add to
The Dow Jones industrial average was down 46.31
points, or 0.31 percent, at 14,712.01. The Standard & Poor's 500
Index was down 8.43 points, or 0.53 percent, at 1,579.76.
The Nasdaq Composite Index was down 34.49 points, or
1.03 percent, at 3,330.14.
The Fed is currently buying $85 billion a month in bonds,
part of its huge stimulus effort that has driven many investors
to embrace riskier assets and has sent U.S. stocks up about 15
percent for the year. Traders now face the task of unwinding
those trades, which is expected to continue to roil global
markets across asset classes.
"We think the stock markets still have a little bit further
to go. We're a little bit less optimistic than the Fed as we
think fiscal tightening is still going to drag on the economy in
the next few months," said Larry Kantor, head of research at
Benchmark 10-year Treasury notes were down 16/32
in price to yield 2.4807 percent, while 30-year bonds
dropped 15/32 in price to yield 3.544 percent.
The dollar continued to climb as Bernanke's view that the
U.S. economy is improving prompted traders to start pricing in a
rise in interest rates in late 2014.
"We're very bullish right now on the U.S. dollar," said
Michael Woolfolk, senior currency strategist at BNY Mellon in
He said the dollar is likely to gain regardless of Fed
actions on tapering. If the economy improves and the Fed cuts
back on its stimulus, the dollar will benefit from expectations
of higher interest rates. But if the Fed maintains stimulus
because the economy is weak, the dollar will rise on safe-haven
The dollar rose 0.6 percent against a basket of currencies
, putting it on track for a weekly gain of 2 percent, the
biggest since early July, 2012.
The euro fell 0.7 percent to $1.3122 and the dollar
gained 0.3 percent against the yen to 97.56 yen.
There was little respite across the emerging markets, with
MSCI's benchmark index down 1.1 percent.
As the Fed's policy tapering gradually pushes U.S. Treasury
yields higher, the attractiveness of returns in developing
countries like Turkey and South Africa has waned.
The emerging markets index has fallen close to 6 percent
this week, making for a year-to-date loss of nearly 15 percent,
and many in the market see further falls ahead.
Gold drew some demand from investors attracted by the week's
big equity and bond price falls, although worries about China's
sluggish growth outlook weighed on sentiment.
Spot gold recovered from a three-year trough and was up 0.9
percent at $1,289.36 an ounce, while gold futures
added 0.2 percent to $1,288.50 an ounce.
But oil gave up some ground gained earlier, with Brent crude
losing $2 to $100.15, while U.S. oil dropped
$1.93 to $93.22.