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Saturday, December 3, 2016

By Rodrigo Campos

NEW YORK (Reuters) — The U.S. dollar and Treasury yields rose on Tuesday, while stocks fell, after comments from a top Federal Reserve official brought forward market expectations of an interest rate increase.

Oil prices edged higher despite the stronger greenback, bouncing back from Monday’s rout.

The dollar rose sharply against the euro after Federal Reserve Bank of Atlanta President Dennis Lockhart, a member of the Fed’s policy setting committee who typically votes with the core, told The Wall Street Journal it would take a sharp turn for the worst in economic data to change his view in support of a rate hike after the mid-September meeting.

Markets are preparing for a rate hike, which would be the first in nearly a decade.

On Wall Street, utilities stocks, sharply sensitive to Treasury yields, were the worst performers among the top 10 S&P 500 industry groups.

“All the world’s central banks have pumped unprecedented amounts of liquidity; if [it] has not created an inflationary event, a pullback may create the opposite,” said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.

“You run the risk of triggering a deflationary event and that’s what markets are fearing.”

Just before 3 p.m. EDT the Dow Jones industrial average (DJI) fell 38.65 points, or 0.22 percent, to 17,559.55, the S&P 500 (SPX) lost 2.73 points, or 0.13 percent, to 2,095.31 and the Nasdaq Composite (IXIC) dropped 2.12 points, or 0.04 percent, to 5,113.27.

Apple’s stock (AAPL.O), down in 10 of the last 11 sessions, weighed heavily on major Wall Street indexes. The stock is off nearly 15 percent from its record high set in late April.

The pan-European FTSEurofirst 300 index (FTEU3) closed down 0.16 percent and a broad measure of stocks in major markets globally (MIWD00000PUS) fell 0.2 percent.

CONSTANT FED WATCH

Friday’s U.S. employment data are key for markets as they try to time the Fed’s next move. Payrolls figures are expected to show the U.S. economy created 223,000 jobs in July, on par with job creation in June, according to economists polled by Reuters. The unemployment rate is expected to hold steady at 5.3 percent.

The euro dipped below $1.09 after Lockhart’s comments, trading at its lowest in two weeks. The currency (EUR=) lost 0.5 percent versus the greenback at $1.0894.

“He is seen as a swing vote and he has become increasingly hawkish,” said Ian Gordon, G10 currency strategist at Bank of America Merrill Lynch in New York.

U.S. crude rose and copper edged up but the outlook for commodities continued to be clouded by concerns over a slowdown in China, the world’s second-largest economy.

Brent (LCOc1) added 1 percent to $50.09 a barrel and U.S. crude (CLc1) gained 1.4 percent to $45.78 a barrel.

“A retest of Brent crude’s 2015 low around $45 per barrel looks inevitable given current ample market supply and intensifying bearish market sentiment towards prices,” BMI Research said in a note.

The Thomson Reuters/CoreCommodity CRB index (TRJCRB) rose 0.8 percent after hitting a more-than-12-year low on Monday.

Benchmark 10-year Treasury notes (US10YT=RR) were last down 18/32 in price to yield 2.216 percent, from a yield of 2.152 percent late Monday. U.S. 30-year bonds (US30YT=RR) were last down 26/32 in price to yield 2.895 percent, from a yield of 2.861 percent late Monday.

(Additional reporting by Richard Leong, Barani Krishnan and Sam Forgione; Editing by Chris Reese and Dan Grebler)

Photo: Traders work on the floor of the New York Stock Exchange July 28, 2015. (REUTERS/Brendan McDermid)