NEW YORK (Reuters) - A bond market selloff that had shaken financial market confidence waned on Thursday but U.S. stocks slumped on concerns strong economic data could boost interest rates in the near term.
Traders were concerned the selloff in bonds could resume on Friday if the May employment report confirms the recovery in the U.S. economy in the second quarter.
German bonds have sold off recently on the belief the European Central Bank’s quantitative easing policy may have sidestepped the threat of deflation. On Wednesday, the ECB increased its inflation forecast for 2015 to 0.3 percent from zero.
German 10-year Bund yields DE10YT=RR, the benchmark for European debt costs, pulled back to 0.83 percent after rising to 0.998 percent, the highest since September 2014. The euro EUR= was last down 0.32 percent at $1.1238 after powering up to $1.1379, its highest since May 18.
The euro had surged more than 3 percent over the prior two days, its biggest such run since March 2009.
“The concern is tomorrow and the jobs number, that is where all the focus is,” said Tim Ghriskey, chief investment officer of Solaris Group in Bedford Hills, New York.
“Probably the concern (is) that it is going to be a good number, it might not be a huge jump in employment, but better than consensus and that could set off another rout in bonds here - that is the primary issue the market is facing.”
Marginally better-than-expected U.S. jobless claims data was balanced by a plunge in productivity figures. The data is likely to keep the Federal Reserve on track to raise interest rates later this year.
In its annual assessment of the U.S. economy, the International Monetary Fund said the Fed should delay a rate hike until the first half of 2016 until there are signs of a pickup in wages and inflation.
Wall Street stumbled, and the S&P 500 broke through support at its 50-day moving average around 2,100.
The Dow Jones industrial average .DJI fell 170.16 points, or 0.94 percent, to 17,906.11, the S&P 500 .SPX lost 18.21 points, or 0.86 percent, to 2,095.86 and the Nasdaq Composite .IXIC dropped 40.11 points, or 0.79 percent, to 5,059.13.
U.S. benchmark Treasury yields US10YT=RR rose as high as 2.425 percent before retreating, and prices were last up 17/32 to yield 2.307 percent.
After a 4-percent jump on Wednesday, Greek shares .ATG ended 1.3 percent lower as uncertainty clouded the country's hopes of clinching an aid deal with euro zone creditors in coming days.
Greek Prime Minister Alexis Tsipras will not come to Brussels on Friday to continue talks with the country’s creditors, an EU official said, complicating an agreement in the cash-for-reforms negotiations. Greece delayed a key debt payment to the International Monetary Fund due on Friday. [IDnL5N0YQ1V1]
Crude oil prices dropped ahead of an OPEC decision likely to keep the market oversupplied. Brent crude LCOc1 settled at $62.03 a barrel, a 2.8 percent fall, while U.S. crude settled down $1.64 at $58 a barrel.
Reporting by Chuck Mikolajczak; Editing by Nick Zieminski and Meredith Mazzilli
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