NEW YORK (Reuters) - Stock markets around the world fell and bond yields rose as investors weighed the implications that a U.S. interest rate rise before the end of the year would have for the global economy and markets.
The Federal Reserve, which kept its rates on hold as expected on Wednesday, took the unusual step of strengthening its language about timing in its statement, making it clear that a December rate hike was still possible. The Fed also removed a previous warning about slowing global growth.
Wall Street edged lower, giving up some of Wednesday's gains. The U.S. stock market initially reacted negatively to the Fed statement, but later reversed course to end near the day's highs on Wednesday, and Thursday's losses were relatively slim.
The Dow Jones industrial average .DJI fell 23.72 points, or 0.13 percent, to 17,755.80, the S&P 500 .SPX lost 0.94 point, or 0.04 percent, to 2,089.41 and the Nasdaq Composite .IXIC dropped 21.42 points, or 0.42 percent, to 5,074.27.
U.S. Treasury yields continued Wednesday's rise after the Fed explicitly referred in its statement at the end of its two-day policy meeting to conditions necessary "to raise the target range at its next meeting". Reference to a particular meeting is rare for the Fed.
The benchmark 10-year Treasury yield rose 8 basis points to 2.17 percent US10YT=RR. The two-year note's yield was 0.73 percent, highest since late September.
The MSCI All-Country World Index has recovered most of the losses that occurred beginning in mid-August on worries about slowed worldwide demand and the Fed's plans. It ended down 0.55 percent on Thursday.
The first estimate of third quarter U.S. growth, released on Thursday, showed the world's biggest economy expanded at a 1.5 percent annualized pace, below the expected 1.6 percent. But economists expect growth to pick up in the fourth quarter, given strong consumer spending figures.
"The (GDP) number may be good enough for the Fed to not view the economy negatively," Collin Martin, director of fixed income at Schwab Center for Financial Research in New York.
In Europe the pan-European FTSEurofirst 300 index .FTEU3 was down 0.04 percent at 1,484 points. Japan's Nikkei share average .N225 gained 0.2 percent to close at 18,935.71.
Many investors are still not convinced about a rate lift-off given a recent run of soft U.S. data, making economic releases in coming weeks more crucial in determining a December move.
Economists expect a key U.S. manufacturing index due Monday USPMI=ECI to show the first contraction in the sector in 2-1/2 years, which would not be conducive for a rate hike.
The dollar gave back earlier gains, with the euro trading 0.5 percent higher on the day at $1.0977 EUR=, having skidded to a 2-1/2 month low of $1.0826 overnight.
Crude oil futures were slightly higher one day after soaring more than 6 percent as the U.S. government reported an inventory build. U.S. crude rose 12 cents to $46.06 a barrel. Brent was down 48 cents to $48.57.
Spot gold fell 2.6 percent to $1,145 an ounce.
Additional reporting by Anirban Nag; Editing by Gareth Jones and Nick Zieminski