* Dollar steadies at higher levels on U.S. rate rise
* European, Asian, emerging market stocks fall
* Bund futures drop, following losses in U.S. Treasuries
* China's yuan skids to its lowest in a year
By Carolyn Cohn
LONDON, March 20 The dollar steadied at higher
levels on Thursday and stocks and bonds fell across the globe as
investors positioned for U.S. interest rates to rise sooner and
faster than previously thought.
Global stocks as measured by the MSCI world equity index
dropped 0.6 percent, adding to the previous
day's losses after Federal Reserve Chair Janet Yellen said the
U.S. central bank might end its bond-buying program this autumn,
and could start to raise interest rates around six months later.
Combined with a slight rise in the projected path for rates
by Fed members, that led the market to bring forward the likely
timing of the first hike in U.S. rates by a couple of months.
The whiplash was felt most in the short end of the Treasury
market which is more sensitive to the course of the Fed funds
rate. Yields on two-year notes shot up 8 basis points
on Wednesday to 43 basis points, the sharpest single-day rise
since mid 2011, and were trading at 42 bps on Thursday.
European stocks dropped 0.4 percent on Thursday,
following losses of more than 1.5 percent in Japan and
other Asian markets.
Yellen sought to use her news conference to emphasize that
rates would stay low for a while and rise only gradually, but
the message was lost on skittish markets.
Her words led the futures market for the U.S. Fed funds rate
<0#FF:> to shift to pricing in around a 50-50 chance of the
first hike in May to June next year. The timing had been July to
Yet many were not convinced the timetable had moved much at
all. A Reuters poll of 17 primary dealers found 10 still
expected the first hike to come in the second half of 2015, and
four were still tipping 2016.
"Looking at the performance of markets this morning, there
is no real followthrough," said Simon Derrick, a currency
strategist with Bank of New York Mellon.
"People are looking for reasons why the range should break.
I don't think Yellen was the thing to do it."
Yields on 10-year notes were at 2.76 percent,
having risen 9 basis points on Wednesday. German Bund futures
, the benchmark for European bonds, fell 60 ticks.
The rise in U.S. yields in turn helped lift the dollar and
sent the euro reeling back a full cent on Wednesday. But the
dollar steadied at $1.3826 on Thursday. Against a basket
of major currencies, the dollar was holding at 79.993
after adding 0.8 percent on Wednesday.
The U.S. currency was slightly up at 102.42 yen,
having jumped a full yen on Thursday and away from important
chart support in the 101.20/30 zone.
The dollar's gains were gold's undoing, sending the metal
down to three-week lows of $1,319.61 an ounce.
The prospect of rising rates in the United States has not
been good for some emerging markets as it threatens to draw
capital away, pressuring equities and currencies.
Emerging stocks fell more than 1 percent on
Thursday to the week's lows, within sight of their worst level
The rate rise expectations also come as China seems to be
weakening its yuan as a way to support a slowing economy, which
puts pressure on other nations in the region to lower their
currencies to stay competitive on exports.
The yuan skidded 1.33 percent below the daily midpoint
fixing to its lowest in a year at 6.2275 per dollar,
a long way from where it started the year at 6.0515 and a huge
move for the normally tightly-controlled currency.
Last weekend, the People's Bank of China (PBOC) doubled the
daily trading band allowed for the yuan to 2 percent from the
mid-point that it sets each day.
In oil markets, Brent futures fell 21 cents to six-week lows
of $105.62 per barrel, while U.S. crude oil added 2
cents to $100.39.
(Additional reporting by Wayne Cole in Sydney and Patrick
Graham in London; Editing by Toby Chopra)