* Weak euro zone factory data pressures euro
* Dollar rises against euro, falls against yen
* After Verizon deal, Treasuries regain footing
By Ellen Freilich
NEW YORK, Sept 12 U.S. stocks edged down on
Thursday as a drop in jobless claims provided few clues on the
Federal Reserve's policy decision next week while a drop in euro
zone factory output data stalled an eight-day rise in world
The dollar edged higher against the euro after the data on
euro zone industrial output and the fall in first-time U.S.
jobless claims, but it slipped versus the yen.
U.S. Treasuries prices rose as investors recovered from a
mammoth week of new corporate bond and Treasuries supply and
before the Treasury sells $13 billion in 30-year bonds, the
final sale of $65 billion in new U.S. government debt this week.
Investors are focused on the Fed's policy meeting on Tuesday
and Wednesday, with expectations growing that the U.S. central
bank will begin to reduce its monthly bond purchases, but by
less than previously thought.
Uncertainty about how much the Fed would reduce stimulus has
grown with weaker-than-expected U.S. data, including jobs growth
in August, and consumer spending, home building, new home sales,
durable goods orders and industrial production in July.
A Reuters poll of economists on Monday found that most now
see the Fed trimming its $85 billion monthly spending on bonds
by about $10 billion, compared with estimates for a $15 billion
reduction in a poll before the jobs report.
The shifting views have put pressure on the dollar, which
hovered near two-week lows against a basket of major currencies
on Thursday. U.S. Treasury yields have dipped to 2.875
percent from over 3 percent last week.
"But the fact of the matter remains, the direction is
obviously towards tapering, which is really a good thing," said
Gordon Charlop, a managing director at Rosenblatt Securities in
New York. "That indicates that it worked. The question will be
how measured will (the Fed) be and you have to think they are
going to err on the side of caution. They will be very measured
in their approach and won't do anything precipitous."
On Wall Street, a drop in initial jobless claims last week
that far exceeded estimates had little effect because the data
was skewed by technical problems. Claims fell to 292,000, the
lowest level since 2006.
The S&P 500 has risen 3.4 percent over the prior
seven sessions as concerns about a Western military strike
against Syria have faded and sentiment has been buoyed by
stronger-than-expected economic data from China.
The Dow Jones industrial average fell 6.79 points or
0.04 percent, to 15,319.81, the S&P 500 lost 2.58 points
or 0.15 percent, to 1,686.55 and the Nasdaq Composite
dropped 7.754 points or 0.21 percent, to 3,717.256.
Europe's broad FTSE Eurofirst 300 index was down
0.07 percent. The MSCI world equity index was
down 0.13 percent.
SIGNS OF STRENGTH IN CREDIT MARKETS
Treasuries debt prices rose a day after the completion of
Verizon's record-breaking corporate bond deal.
Verizon sold $49 billion worth of bonds, eclipsing the
previous investment grade record of $17 billion by Apple in
April, according to IFR, a Thomson Reuters service.
"The Verizon deal showed that financing is still available
at these (interest rate) levels and that's encouraging for
mergers and acquisitions and leveraged buyouts," said Jason
Brady, managing director and portfolio manager at Thornburg
Investment Management in Santa Fe, New Mexico.
If the Fed next week adjusts its bond-buying program only
modestly, that, too, will favor riskier assets, Brady said.
Euro/dollar and dollar/yen one-week implied volatilities - a
gauge of how sharp price swings will be next week - have shot up
as investors try to guess when and how fast the Fed will start
to run down its monetary stimulus.
The one-week euro/dollar implied volatility traded
near 7.85 percent, much higher than the equivalent one-month
rate which was around 7.2 percent. The one-week dollar/yen
implied volatility also traded much higher than the
"Unless we get a significant new piece of information, we're
going to be in this range-bound pattern, maybe with some bias
for dollar weakness, as we wait for the Fed," said Vassili
Serebriakov, FX strategist at BNP Paribas in New York.
The shifting views on the Fed's likely action have put
pressure on the dollar, which hovered near two-week lows against
a basket of major currencies on Thursday.
But the euro slipped against the dollar and European shares
ended a run that had taken them near a five-year high when data
showed a surprisingly large drop in industrial output across the
currency bloc in July.
Reduced expectations of the degree of Fed tapering eased
pressure on emerging market currencies, which had been driven up
as the cheap U.S. money was pumped into high-yielding stocks and
bonds, and are now falling as these trades reverse.
Indonesia's central bank unveiled a surprise rate hike to
help the rupiah recover from a 4-1/2-year low. Other
Asian central banks were expected to wait for next week's Fed
decision before taking any action.
MSCI's broadest index of Asia-Pacific shares outside Japan
shed 0.3 percent while the stronger yen and
downbeat economic data helped push Japan's Nikkei stock average
down 0.26 percent.
In fixed income markets anticipation of the Fed trimming its
stimulus combined with concerns abut domestic politics drove up
Italy's borrowing costs at an auction of 7.5 billion euros ($10
billion) of new debt.
In commodities, copper slipped 1.62 percent to $7,053.50 a
tonne. An improved outlook for China's economy and the
reduced risk of a strike on Syria have helped bring copper
prices off the three-year lows plumbed in late June.
Gold skidded to $1,331.96 an ounce, its weakest since
mid-August, while Brent crude added about 0.8 percent to
$112.41 as investors watched diplomatic efforts to place Syria's
chemical weapons under international control stepped up.
Moves towards a diplomatic solution on Syria have also lent
some support to financial markets.
U.S. Secretary of State John Kerry and Russian Foreign
Minister Sergei Lavrov were meeting in Geneva on Thursday to try
to agree on a strategy to eliminate the chemical arsenal.