Stocks weaken, dollar gains amid Fed hike talk

Thu May 19, 2016 4:22pm EDT
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By Lewis Krauskopf

NEW YORK (Reuters) - Stocks around the world sold off on Thursday, while the U.S. dollar gained, pressuring oil and other commodities, as investors absorbed the possibility that the U.S. Federal Reserve will raise interest rates in the near term.

Oil prices erased most losses as supply worries offset the drag from the dollar.

Financial markets were adjusting to the minutes of the Fed April meeting, released on Wednesday, in which the U.S. central bank opened the door to a rate hike in June, catching investors off guard.

Speaking on Thursday, New York Fed President William Dudley said the U.S. economy could be strong enough to warrant an interest rate increase in June or July.

"We are on track to satisfy a lot of the conditions" for a rate increase, Dudley said.

Traders were projecting a 32-percent chance the Fed would raise rates in June, according to the CME FedWatch tool, up from 15 percent on Tuesday. A majority now expect a rate hike at the July meeting.

"The Fed seems to think the economy is quite a bit stronger than some market pundits and maybe investors in general think," said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland.

"Not only is there the concern that they will, in fact, do damage to the economy, but also one more step in removing the easy money that clearly has been a benefit for rising asset prices over the last few years," McCain said.   Continued...

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., May 16, 2016.  REUTERS/Brendan McDermid