NEW YORK (Reuters) - The U.S. dollar rose more than 1 percent on Tuesday, resuming a recent upward trend and weighing on Wall Street stocks as investors fretted the currency's strength would hurt multinational corporate profits.
U.S. equities had traded higher for much of the session but turned negative in the final hour of trading. European shares ended sharply higher, as did crude oil.
Recent market activity has favored risk assets, a move tied to Friday's weaker-than-expected U.S. payrolls report. While the data, along with other recent indicators, pointed to slowing U.S. growth, market participants viewed them positively, as they suggested the U.S. Federal Reserve would delay its first interest rate increase in nearly a decade.
The U.S. dollar index, which measures the greenback against a basket of currencies, rose 1.22 percent on Tuesday. Until recently, the dollar had rallied sharply on increased expectations for higher rates from the U.S. central bank, although those expectations have dimmed somewhat of late.
While a strong U.S. dollar is a sign of solid fundamentals, analysts are concerned that the currency will weigh on the earnings of U.S. multinational companies. Bank of America-Merrill Lynch on Tuesday cut its 2015 earnings estimates for the S&P 500 by $2 a share, citing the foreign exchange headwind.
"If the (dollar) move is gradual it shouldn't impact stocks too much, as companies will have a chance to hedge against the impact, but a sharp rise will have an impact," said Tony Roth, chief investment officer of Wilmington Trust in Wilmington, Delaware. It "acts as a natural brake to the U.S., and we expect it will continue to strengthen."
The Dow Jones industrial average fell 5.43 points, or 0.03 percent, to 17,875.42, the S&P 500 lost 4.29 points, or 0.21 percent, to 2,076.33 and the Nasdaq Composite dropped 7.08 points, or 0.14 percent, to 4,910.23.
The MSCI International ACWI Price Index slipped 0.16 percent.
The S&P 500 rose as much as 0.4 percent earlier in the session, boosted by FedEx Corp's offer to buy TNT Express for $4.8 billion, the latest in a series of multi-billion-dollar deals that suggest companies continue to see value.
The potential trans-Atlantic takeover supported European shares, with the pan-European FTSEurofirst index of leading 300 shares closing 1.6 percent higher. Europe, which was closed Monday for Easter, was also fueled by comments from Greek Finance Minister Yanis Varoufakis, who on Sunday said the country intended "to meet all obligations to all its creditors, ad infinitum," seeking to quell fears of a default.
The euro fell 1 percent while the yen lost 0.7 percent against the dollar. Bucking the U.S. dollar's strength, the Australian dollar rose 0.54 percent after the country's central bank surprised some by leaving interest rates at a record low 2.25 percent.
The benchmark 10-year U.S. Treasury note rose 4/32 in price, pushing the yield down to 1.8865 percent.
In commodities, U.S. crude oil futures jumped 3.5 percent to settle at $53.98 per barrel, recovering from an earlier drop of more than 2 percent and building on a rise of more than 6 percent on Monday. Prices were boosted by U.S. government forecasts of lower domestic crude production growth, higher global demand for oil and data showing a jump in U.S. job openings.
Brent crude rose 1.7 percent to settle at $59.10 per barrel.
Gold prices fell 0.4 percent as the dollar rebounded. Silver lost 0.7 percent while copper rose 1.4 percent.