* Wall Street steady but volatility expected
* Dollar continues gains against euro, yen
* Crude drops, gold bounces back
By Leah Schnurr
NEW YORK, June 21 Wall Street stocks stabilized
while world markets were mixed on Friday after two days of steep
losses as the dollar headed for its biggest weekly gain in
almost a year following the Federal Reserve's notice that it
plans to withdraw stimulus that has fueled the rally in equities
Tokyo was an exception, with the Japanese stock market up
1.7 percent, while emerging markets remained under stress and
extended their losses.
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. Treasuries prices reversed early gains to trade
"While volatility is going to remain high, the (stock)
market next week will move to a consolidation phase," said Peter
Cardillo, chief market economist at Rockwell Global Capital in
He pointed to the quarterly expiration and settlement of
June equity options and futures contracts later on Friday as
another volatility trigger 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 up 40.80 points,
or 0.28 percent, at 14,799.12. The Standard & Poor's 500 Index
was up 2.07 points, or 0.13 percent, at 1,590.26. The
Nasdaq Composite Index was down 12.82 points, or 0.38
percent, at 3,351.82.
MSCI's broad world stock index, which tracks
shares in 45 countries, was off 0.3 percent after dropping 3.5
percent in Thursday's rout. In Europe, the broad FTSE Eurofirst
300 index gave up 0.7 percent.
Fed Chairman Ben Bernanke heralded the end of the era of
easy money on Wednesday when he said that if the U.S. economy
keeps improving as expected, the Fed's asset purchases would be
scaled back later this year and end completely by mid-2014.
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 are now facing 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 5/32
in price to yield 2.439 percent.
But 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 0.5 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 0.5 percent to $1.3158 and the dollar
gained 0.5 percent against the yen to 97.69 yen.
However, there was little respite across the emerging
markets, with MSCI's benchmark index adding a further
0.9 percent loss to the 4 percent shed in Thursday's violent
selloff, its biggest daily fall since September 2011.
As the Fed's policy tapering gradually pushes U.S. Treasury
yields higher, the attractiveness of the returns on offer in
star developing countries like Turkey and South Africa has
The emerging markets index has fallen more than 5 percent
this week, making for a year-to-date loss of around 15 percent,
and many in the market see further falls ahead.
Gold drew some demand from investors attracted by the week's
big price falls, although worries about China's sluggish growth
outlook weighed on sentiment.
Spot gold recovered from a three-year trough and was up 1.3
percent at $1,294.76 an ounce, while gold futures
climbed 0.5 percent to $1,239.20 an ounce.
But oil gave up some ground gained earlier, with Brent crude
losing $1.60 to $100.55, while U.S. oil dropped
$1.32 to $93.82.