NEW YORK U.S. Treasury bonds rallied on Monday after July durable goods orders came in weaker than expected, while Wall Street dipped on concerns over Syria.
Global equity markets, including U.S. stocks, had been relatively calm throughout the day. But they turned lower after U.S. Secretary of State John Kerry said all nations must stand up for accountability on the use of chemical weapons in Syria, adding an element of geopolitical uncertainty to markets.
Investors were also cautious over Italy, where the risk of a new government crisis sent shares and bonds tumbling.
In the United States, orders for long-lasting manufactured goods fell the most in nearly a year last month and a gauge of planned business spending on capital goods tumbled. The weak data boosted prices in the U.S. bond market, where the benchmark 10-year U.S. Treasury note was up 8/32, its yield at 2.7871 percent.
The durable goods report was the latest in a series of data points that have kept expectations for the Federal Reserve's next step muddled. Economists largely expect the Fed will start to reduce its $85 billion in monthly purchases of debt, but some uncertainty over this remains.
"If there is anything that is driving the markets today, it is that the durable goods numbers were weaker than expected and that raises the question whether the Federal Reserve might not begin to taper," said Hugh Johnson, chief investment officer of Hugh Johnson Advisors LLC in Albany, New York.
The debate over the Fed's plans and its impact on emerging economies has dominated markets in recent weeks.
The Dow Jones industrial average .DJI ended down 64.05 points, or 0.43 percent, at 14,946.46. The Standard & Poor's 500 Index .SPX was down 6.72 points, or 0.40 percent, at 1,656.78. The Nasdaq Composite Index .IXIC was down 0.22 points, or 0.01 percent, at 3,657.57.
"The numbers were disappointing this morning, but maybe we've returned to one of those odd situations where bad news is good for the market in terms of the Fed tapering," said Peter Jankovskis, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois.
In Italy, members of Silvio Berlusconi's center-right People of Freedom party said on Sunday they would force early elections if their center-left coalition allies voted next month to expel the former Italian premier over a tax fraud conviction.
Italian shares .FTMIB ended down 2.1 percent, but the broader euro zone stock market .STOXX50E was down just 0.2 percent. Italy's bonds fell, taking Spanish and Portuguese bonds down with them. <GVD/EUR>
Investors are worried that Italy's plans to mend its finances will fall apart if the coalition crumbles and that being without a government could make it tricky for the European Central Bank to shield it from market pressure.
"If you have new elections now there is a high risk you would not have a majority government, so that is why we are seeing a widening of spreads in the periphery," said ING rate strategist Alessandro Giansanti. He noted the timing is poor, given Italy is set to sell bonds this week.
After the turmoil of last week .MSCIEF, share indexes in India gained ground, though there were modest falls in Indonesia and both countries' currencies weakened again against the dollar. <EMRG/FRX>
Investors are expecting improving returns from advanced economies while India, Indonesia and Brazil have all scrambled in recent weeks to try to stem destabilizing outflows that have crippled their currencies.
The Indian rupee weakened on Monday, tracking offshore rates, while month-end dollar demand from importers also dragged the currency lower. The country's central bank stepped in to sell dollars to try to restrain the decline, which has taken the rupee to record lows.
Against the yen, the dollar traded at 98.42 off Friday's peak of 99.15, while the euro bought $1.3369, having climbed as high as $1.3410.
Spot gold, which as an inflation hedge has benefited from the global flood of liquidity, popped above $1,400 an ounce for the first time since early June, extending Friday's 1.5 percent rally. It last traded up 0.4 percent.
U.S. crude slipped 0.1 percent to $106.28 a barrel, while Brent was up slightly at $111.13.
(Additional reporting by Chuck Mikolajczak, editing by Dan Grebler)