SINGAPORE, May 4 (Reuters) - A global measure of stocks was lower while the dollar gained some ground as the European Central Bank raised rates on Thursday and signalled the need for more tightening a day after the U.S. Federal Reserve also raised rates.
U.S. Treasury yields were lower while oil prices slowed their declines after a massive two-day sell off.
Along with investor indigestion over central bank messaging, Wall Street stock indexes were also under pressure from another rout in U.S. bank shares, which have reeled from the collapse of a third major regional bank over the weekend.
European stocks were lower after the ECB, the central bank for the 20 countries that share the euro currency, raised interest rates by 25 basis points to 3.25% and signalled that more tightening would be needed to tame inflation.
In contrast to the ECB, the Fed had implied that its marathon hiking cycle may be drawing to a close.
While the idea of a pause in U.S. rate hikes was welcome news for U.S. investors, it comes with the implication that the economy is slowing, said Lauren Goodwin, economist and portfolio strategist at New York Life Investments in New York.
"This balance between potential interest rate stability and an increase in recession risk is what markets are trying to digest today," said Goodwin.
In particular, the economist saw the Fed's reference to tightening credit conditions as a confirmation of her expectations of an economic downturn.
"It's highly unlikely we'll avoid a recession," Goodwin said. "We're on a clear path toward a recession in the next few months."
The Dow Jones Industrial Average (.DJI) fell 394.91 points, or 1.18%, to 33,019.33, the S&P 500 (.SPX) lost 32.23 points, or 0.79%, to 4,058.52 and the Nasdaq Composite (.IXIC) dropped 56.73 points, or 0.47%, to 11,968.60.
The pan-European STOXX 600 index (.STOXX) lost 0.47% and MSCI's gauge of stocks across the globe (.MIWD00000PUS) shed 0.47%. Emerging market stocks (.MSCIEF) rose 0.68%.
Adding to investor worries, another U.S. regional bank - PacWest Bancorp (PACW.O) - signalled troubles days after First Republic collapsed.
Among currencies, the dollar gained against the euro as investors digested the ECB's rate hike and commentary as well as the Fed's hike and its indication that it may pause.
The dollar index rose 0.109%, with the euro down 0.38% to $1.1017.
The Japanese yen strengthened 0.73% versus the greenback at 133.70 per dollar, while Sterling was last trading at $1.2585, up 0.17% on the day.
In Treasuries, yields fell on Thursday after initially jumping on new data that showed labor costs jumped and productivity dropped in the first quarter.
Benchmark 10-year notes were down 8.2 basis points to 3.321%, from 3.403% late on Wednesday. The 30-year bond was last down 0.7 basis points to yield 3.7084% while the 2-year note was last was down 23.5 basis points to yield 3.704%%.
In energy, crude oil prices were stabilizing after three straight days of declines amid demand concerns in major consuming countries given worries about the global economy.
U.S. crude recently fell 0.09% to $68.54 per barrel and Brent was at $72.53, up 0.28% on the day.
Meanwhile, gold touched its highest level since 2020 as U.S. banking concerns accelerated a flight to the safe-haven asset and sustained its stellar rally driven by bets for a pause in U.S. rate hikes.
Spot gold added 0.5% to $2,049.41 an ounce. U.S. gold futures gained 1.10% to $2,050.90 an ounce.
