* Dollar under pressure ahead of Federal Reserve
* European shares boosted by M&A activity
* Nikkei plumbs four-week lows, other Asian markets also
* Data, Fed, ECB, Bank of England meetings pose hurdles this
NEW YORK, July 29 U.S. stocks fell but the
dollar came off a five-week low on Monday ahead of a two-day
Federal Reserve meeting where the U.S. central bank is expected
to reaffirm its commitment to keep benchmark interest rates low.
Weaker U.S stocks reflected a fall in contracts to purchase
previously owned U.S. homes in June, which retreated from a more
than six-year high the prior month and suggested rising mortgage
rates were starting to dampen home sales.
Until recently, investors have embraced average or weak data
with the expectation that the Fed will continue to stimulate the
economy, putting a floor under stock prices. However, the
prospect of a slightly less-accommodative Fed in the near future
has increased the market's need for a stronger economy.
In addition to the Federal Reserve, the European Central
Bank and the Bank of England also meet this week. The ECB and
the BOE are expected to repeat or refine their "forward
guidance" that borrowing costs will remain extraordinarily low
as long as growth is sub-par and inflation poses no threat.
"The focus right now is the Fed meeting and then the
employment numbers at the end of the week," said Peter
Jankovskis, co-chief investment officer at OakBrook Investments
LLC in Lisle, Illinois.
The Dow Jones industrial average was down 58.98
points, or 0.38 percent, at 15,499.85. The Standard & Poor's 500
Index was down 7.28 points, or 0.43 percent, at 1,684.37.
The Nasdaq Composite Index was down 12.35 points, or
0.34 percent, at 3,600.81.
With just three trading days left in the month, the S&P 500
is set to post its best monthly performance since October 2011.
The Nasdaq's advance makes July so far the best month in a year
and a half.
Jankovskis said investors will try to decipher what the Fed
knows about the U.S. jobs report a couple of days in advance,
which could make Wednesday "even more volatile than it usually
is" on Fed statement days.
On Friday, the U.S. payrolls report will be released, with
forecasts for 185,000 jobs added in July and a dip in the
jobless rate to 7.5 percent. A strong report would
support the case for the Fed to start rolling back its stimulus
in September and help the dollar.
European share markets remained buoyant as two more giant
merger deals, this time in the media and pharmaceuticals
sectors, added to a flurry of M&A activity in recent
The FTSEurofirst 300 index of top European shares
was up 0.1 percent. The benchmark index has risen 9 percent
since late June.
The MSCI index of world stock markets fell
The dollar was 0.3 percent lower against the yen at
97.9806 yen while the dollar index was last up 0.1
percent after earlier touching a five-week low of 81.785.
"The dollar faces a lot of key event risk in the week ahead
with the release of the U.S. Q2 GDP report and the latest FOMC
policy meeting on Wednesday, followed by the release of the U.S.
employment report for July on Friday," said Lee Hardman,
currency strategist at Bank of Tokyo Mitsubishi.
In debt markets, German Bund futures edged back into
negative territory in thin trade and euro zone periphery bonds
eased. But investors refrained from placing big bets before this
week's monetary policy decisions and data.
Benchmark 10-year Treasury notes fell 5/32 in
price, their yields edging up to 2.58 percent from 2.57 percent
late on Friday. Ten-year yields have ranged from around 2.43
percent to 2.63 percent in the last two weeks, after hitting
two-year highs of 2.76 percent on July 8.
Commodities markets also struggled, although concerns about
supply disruptions kept oil off three-week lows.
Nervousness ahead of Chinese manufacturing data on Thursday hit
copper earlier in the day.
With investors bracing for another round of disappointing
economic news from the world's No. 2 economy, Asian markets were
Japan's Nikkei dropped 3.3 percent to hit a four-week low.
Investors' jitters were compounded by a stronger yen, which is
negative for the country's exporters, and concerns that plans to
increase the country's sales tax - its most significant fiscal
reform in years - could be watered down.
"A sense of caution is looming in the market, especially
because investors are worried about a slowdown in the Chinese
economy. And when they see a risk in Asia, they tend to buy the
yen, and the Japanese market is hit by that," said Kyoya
Okazawa, head of global equities at BNP Paribas.