NEW YORK (Reuters) - A gauge of global equity markets moved to a near 13-month high on Wednesday and U.S. Treasury yields fell for a second straight session as expectations for a rate hike by the U.S. Federal Reserve this year continued to fade.
A weaker-than-expected August employment report on Friday and Tuesday's soft data on the services sector have crimped expectations the Fed will boost interest rates when it meets next week and for the rest of the year.
The probability for a rate hike in September stands at 15 percent, according to CME's FedWatch tool, while expectations for a hike in December have fallen back below 50 percent. Investors had been pricing in greater chances of a rate hike this year after hawkish comments from several Fed officials.
The Federal Reserve is scheduled to release its Beige Book - a summary of commentary on economic conditions - at 2 p.m. EDT (1800 GMT) on Wednesday. That will be parsed by investors for rate-hike clues.
"We've had three to four pieces of relatively disappointing economic data, so that puts some focus on today's Beige Book," said Art Hogan, managing director of Wunderlich Equity Capital Markets.
The Dow Jones industrial average .DJI fell 37.8 points, or 0.2 percent, to 18,500.32, the S&P 500 .SPX lost 2.88 points, or 0.13 percent, to 2,183.6 and the Nasdaq Composite .IXIC added 0.34 points, or 0.01 percent, to 5,276.25.
U.S. stocks were led lower by the consumer staples sector .SPLRCS, off 0.8 percent. General Mills (GIS.N) shares lost 2.9 percent to $68.86 after the company said its first-quarter organic net sales will be below its full-year guidance range.
Emerging market shares .MSCIEF led the charge, touching their strongest levels since July 2015 as investors sought returns with interest rates likely to stay low for a prolonged period.
European shares reversed early losses, with the FTSEurofirst 300 .FTEU3 up 0.3 percent. MSCI's all-country world index .MWD00000PUS edged up 0.01 percent after touching an intraday high of 424.71, its highest level since August 11.
Oil prices dipped as many market participants remained doubtful producers would reach a deal to freeze output. Brent futures LCOc1 were off 0.3 percent at $47.11 and U.S. crude shed 0.2 percent at $44.73 a barrel.
Falling expectations for a rate hike sent U.S. Treasury yields lower, with benchmark 10-year Treasury notes US10YT=RR were up 1/32 in price to yield 1.5391 percent, from 1.543 percent on Tuesday. Yields fell as low as 1.519 percent, a three-week trough.
Euro zone government bond yields fell as some investors bet the weak U.S. data, which followed weaker-than-expected jobs numbers on Friday, would pressure the European Central Bank to ease monetary policy further. The ECB meets on Thursday.
The dollar was last down 0.3 percent at 101.71 yen JPY=, having fallen as low as 101.18, its weakest since Aug. 16, after a report from the Sankei newspaper that Bank of Japan policymakers are divided ahead of the central bank's next meeting.
The dollar index .DXY, which measures the greenback against a basket of major currencies, edged up 0.14 percent after a drop of more than 1 percent on Tuesday.
Additonal reporting by Yashaswini Swamynathan; Editing by Nick Zieminski