August 22, 2014 / 8:55 PM / 3 years ago

GLOBAL MARKETS-Stocks pause, dollar rises on Fed comments, Ukraine

* Dollar rise lifts greenback index to 2014 high
    * Russia convoy enters Ukraine
    * Yellen urges caution on rates moves

 (Adds closing New York prices)
    By Michael Connor
    NEW YORK, Aug 22 (Reuters) - Wall Street and other stock
markets paused on Friday, halting the week's strong gains, as
worsening Ukraine tensions dogged trading, while the dollar rose
after Federal Reserve Chair Janet Yellen said policymakers
eyeing interest rate hikes need to move cautiously.
    Ukraine on Friday said Russia had launched a "direct
invasion" of its territory after Moscow sent a convoy of aid
trucks across the border into eastern Ukraine, where pro-Russian
rebels are fighting government forces.
    Moscow, which has thousands of troops close to the Russian
side of the border, warned against any attempt to "disrupt" the
convoy but did not say what action it might take if Kiev's
military intervened. 
    "The market probably is a little naive in thinking the
Ukraine thing is going to blow over pretty soon," said Erik
Davidson, deputy chief investment officer at Wells Fargo Private
Bank in San Francisco. "We will probably be talking about
Ukraine through the winter."
    The Dow Jones industrial average fell 38.27 points,
or 0.22 percent, to 17,001.22, the S&P 500 lost 3.97
points, or 0.2 percent, to 1,988.40, and the Nasdaq Composite
 added 6.45 points, or 0.14 percent, to 4,538.55.
    Benchmark 10-year U.S. Treasuries ended up 2/32 of a point
in price to yield 2.40 percent. The 30-year Treasury
 traded up 22/32 of a point in price to yield 3.15
percent and benefited from Europe's weakness, geopolitical
concerns and views that U.S. growth is as robust as thought.
    The U.S. dollar index, which values the greenback
against a basket of a half dozen major currencies, was up 0.2
percent at 82.310 after setting a 2014 high of 82.456. The euro
 was off 0.35 percent against the dollar at $1.323. 
    "She gave everybody a bone and didn't commit herself to
anything that the market hadn't already considered," Phil
Orlando, chief equity strategist at Federated Investors in New
York, said of Yellen's comments.
    In a speech to a gathering of central bankers, closely
watched for hints on shifts in monetary policy, Yellen said the
U.S. labor market is still bruised from the Great Recession and
that the Fed should move cautiously in determining when interest
rates should rise.
    The U.S. jobless rate has fallen more quickly than expected,
but Yellen said the economic disruption of the last five years
has left millions of workers sidelined, discouraged or stuck in
part-time jobs, which is not captured in the unemployment rate
    In such an environment "there is no simple recipe for
appropriate policy," Yellen said, arguing for a "pragmatic"
approach that allows officials room to evaluate data as it
arrives without committing to a preset policy path.    
    At the same time, she said, the labor market may in fact be
tighter than it seems and the Fed may have to raise rates sooner
and more quickly than expected. Higher interest
rates tend to boost the allure of the dollar.
    "On balance, the speech was a very gradual and nuanced move
away from Yellen's overtly dovish policy stance in the past
toward a more balanced view on the economy and on monetary
policy," said Omer Esiner, chief market analyst at Commonwealth
Foreign Exchange in Washington.
    European shares dipped 0.27 percent after the
Russian convoy of aid trucks entered eastern Ukraine without
Kiev's permission. 
    The MSCI world equity index, which tracks
shares in 45 nations, was down 0.29 percent.
    Worries about the euro zone slipping toward deflation and
near-zero growth pinned German 10-year government bond yields
firmly below 1 percent on Friday. 
    In commodities trading, spot gold rose 0.22 percent
to $1,280 an ounce, after losing 1.3 percent on Thursday as rate
rise expectations sent it plowing through key support levels to
a two-month low. 
    Oil eased as the strong dollar and plentiful supplies
continued to pressure prices. October Brent crude ended
down 36 cents to $102.27 a barrel. U.S. crude lost 31
cents to end at $93.65 a barrel 

 (Reporting by Michael Connor in New York; Additional Reporting
by Daniel Bases, Gertrude Chavez-Dreyfuss, Akane Otani and Chuck
Mikolajczak in New York; Editing by Dan Grebler)

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