Shares flat but S&P hits new high; bonds rally on ECB hopes

Reuters
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Traders work on the floor of the New York Stock Exchange May 23, 2014. REUTERS/Brendan McDermid/File …

By Herbert Lash

New York (Reuters) - Global equity markets traded flat on Wednesday as U.S. and German equities eased from record highs but risk appetite remained strong, knocking safe-haven gold to nearly a 4-month low.

U.S. and European bond markets rallied, pushing yields to multi-month lows. Receding fears that big wins by anti-euro parties in EU elections might derail fiscal reforms in weaker countries helped European bonds.

The recent rally in equities has been supported by strong U.S. economic data and expectations of monetary easing by the European Central Bank. The benchmark S&P 500 hit yet another intraday record early in the session before retreating.

Spot gold fell 0.4 percent to $1,258.00 an ounce, having hit $1,255.66, marked its weakest since early February.

On Tuesday, gold posted its biggest daily fall since mid-December after U.S. and German stocks set record highs.

The 10-year U.S. Treasury note rose 21/32 in price to yield 2.4431 percent, the lowest since last July.

"This is a split personality market with the S&P at or near all time highs in anticipation of an improving economy and higher earnings while the bond market and yields continue to drop suggesting maybe caution is warranted," said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management in Minneapolis.

MSCI's all-country world equity index traded ever so slightly lower, falling 0.02 percent to 420.02, less than 2 percent below its lifetime high.

The FTSEurofirst 300 index of leading European shares fell 0.07 percent to close at 1,377.83.

Wall Street edged lower, with the S&P turning south late in the day.

The Dow Jones industrial average closed down 42.32 points, or 0.25 percent, to 16,633.18. The S&P 500 lost 2.13 points, or 0.11 percent, to 1,909.78 and the Nasdaq Composite dropped 11.994 points, or 0.28 percent, to 4,225.075.

The dollar rose on softness among other major currencies such as the euro, which fell below $1.36 on gathering expectations of an ECB policy shift next week.

The U.S. dollar index hit an eight-week peak of 80.581, reflecting a 0.29 percent decline for the trading day in the euro against the U.S. currency. The index, a measure of a basket of currencies, was last at 80.550, up 0.25 percent.

A rally in German Bunds spilled over to U.S. Treasuries. German 10-year Bund yields, the benchmark for euro zone borrowing, were down at 1.287 percent, a 2014 low.

Yields fell after an unexpected rise in German unemployment and a deceleration in the euro zone money supply reinforced expectations of further ECB stimulus at next month's meeting.

U.S. crude fell more than $1 a barrel as traders took profit ahead of inventory reports expected to show a build, while Brent edged lower, propped up by tensions in Ukraine and Libya.

Brent settled down 21 cents at $109.81 a barrel, while U.S. oil fell $1.39 to settle at $102.72 a barrel.

(Reporting by Herbert Lash; Additional reporting by Marc Jones in London; Editing by Leslie Adler, James Dalgleish and Chizu Nomiyama)

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