July 11, 2012 / 12:48 AM / 5 years ago

Dow, Nasdaq sag on Fed minutes, but dollar flies

NEW YORK (Reuters) - The Dow and Nasdaq fell on Wednesday, while the dollar hit a two-year high against the euro after minutes from the Federal Reserve’s June meeting showed any additional bond buying by the Fed was likely to happen only if the U.S. economy gets weaker.

Traders work at their desks at the Frankfurt stock exchange July 11, 2012. REUTERS/Alex Domanski

The benchmark Standard & Poor’s 500 Index closed flat, but the Dow slipped 0.4 percent and Nasdaq lost 0.5 percent for the day. The minutes from the Fed’s June 19-20 meeting suggested that most policymakers were not yet ready to take bolder action on the sluggish economy.

The dollar extended gains against the euro, which hit a two-year low of $1.2211 after the minutes. Gold ended nearly flat, trimming its gains following the release of the Fed minutes.

Crude oil futures finished sharply higher, despite mixed signals from the Fed. A tight supply outlook in the North Sea and a drop in U.S. crude stockpiles in the latest week helped lift oil prices.

Investors were hoping the minutes would suggest the U.S. central bank was getting closer to another round of stimulus.

“The minutes do not on the surface suggest a sizable body of support for further immediate action, although it should be borne in mind that the comments were made prior to recent data disappointments,” said Peter Buchanan, economist at CIBC World Markets in Toronto.

The Dow Jones industrial average .DJI slipped 48.59 points, or 0.38 percent, to close at 12,604.53. The Standard & Poor’s 500 Index .SPX inched down just 0.02 of a point, or 0.00 percent, to 1,341.45. The Nasdaq Composite Index .IXIC declined 14.35 points, or 0.49 percent, to finish at 2,887.98.

SAFETY IS THE NAME OF THE GAME

The bond market did not react to the minutes. But U.S. benchmark 10-year Treasury note yields fell to near-record lows after a $21 billion sale of new notes saw huge demand in a flight-to-safety bid from investors who buy directly from the government.

Germany sold 10-year government debt at record low yields earlier in the day.

“It’s very much a grab for safe assets internationally,” said Carl Lantz, interest-rate strategist at Credit Suisse in New York.

The 10-year U.S. Treasury note traded as low as 1.45 percent - just 1 basis point higher than their record low - immediately after the auction. The note then bounced back to about 1.52 percent, near where it traded before the sale.

OIL GAINS, GOLD FLAT

Crude oil trimmed earlier gains after the minutes also showed that the Fed’s staff had lowered its forecast for gross domestic product and projected growth rate to “not materially” exceed potential output until 2014.

“The Fed’s lower GDP forecast and lack of clarity on further easing measures has undermined the rally in crude oil,” said John Kilduff, partner at Again Capital LLC in New York.

But oil’s pullback was short-lived.

Brent crude oil, which fell more than 2 percent on Tuesday, rose back above $100 a barrel after the Organization of the Petroleum Exporting Countries left its 2012 world oil demand growth forecast unchanged at 0.9 million barrels per day.

OPEC produces one-third of global oil.

Brent prices also got a lift from news that the combined daily loading volume of the four benchmark North Sea crude oil streams was expected to fall to a record low in August, based on Reuters calculations, traders said.

U.S. government petroleum inventories showed a drawdown last week of 4.7 million barrels, almost four times the forecast in a Reuters poll, but it was overshadowed by larger-than-expected gains in gasoline and distillate stockpiles.

Brent crude for August delivery rose $2.26 to settle at $100.23 a barrel. U.S. crude advanced $1.90 to settle at $85.81 a barrel.

Gold ended nearly flat as spot gold prices rose $11.89 to $1,576.30 an ounce.

U.S. COMEX August gold futures settled down $4.10 at $1,575.70 an ounce.

The Reuters/Jefferies CRB Index .CRB of 19 commodities was up 2.15 points, or 0.74 percent, at 290.79.

Earlier in Europe, equities steadied, with a weak start to the second-quarter reporting season from the autos and luxury sectors denting sentiment, though technical support levels put a lid on losses in thin and jittery summer trading.

The region’s sluggish response to the euro zone’s debt crisis sent 10-year German bond yields to new lows.

The FTSEurofirst 300 index .FTEU3 of top European companies closed flat at 1,039.12.

The MSCI index of global stocks .MIWD00000PUS also finished flat, down just 0.02 percent at 308.17.

The dollar rebounded and was up against a basket of major trading-partner currencies, with the U.S. Dollar Index .DXY up 0.10 percent at 83.483, slightly off a 52-week high at 83.61.

The euro fell against most major currencies on anxiety over how policymakers plan to tackle the debt crisis after it appeared there would be no quick judgment from a German court on the euro zone’s bailout fund.

The euro was down 0.05 percent at $1.2243.

Germany sold just over 4 billion euros of 10-year government bonds at record low yields, with demand solid due to concerns that the recently agreed anti-crisis measures may not be powerful enough to overcome the euro zone debt crisis.

Yields on 10-year German debt in the secondary market were lower at 1.271 percent, off the average auction result of 1.31 percent.

Reporting by Herbert Lash; Editing by Chizu Nomiyama, Dan Grebler and Jan Paschal

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