Dow's 20,000 barrier, weak European banks dent stocks

[December 29, 2016]  By Jamie McGeever

LONDON (Reuters) - European shares, the dollar and bond yields fell on Thursday, with traders using the quiet holiday period to book some profit on the rise that had lifted all three to multi-year and in some cases record highs recently.

Weakness in European financial stocks helped to push broader indices into the red, extending the slippage after soft U.S. housing data the previous day triggered the S&P 500's biggest fall in more than two months.

U.S. stock futures pointed to a flat open on Wall Street. The Dow Jones Industrial Average has reached record peaks this month, coming within 100 points of the 20,000 mark on the past 11 consecutive trading sessions, seven of them within 50 points.

The yield on 10-year U.S. Treasury notes slipped to a two-week low as the bond market sell-off fizzled, pulling the dollar to a two-week low against the yen.

"European stock markets are slightly down after weaker than expected U.S. data yesterday weighed on global sentiment and sent the dollar down," Action Economics analysts wrote in a note to clients.

"Renewed risk aversion is also weighing on European stocks, although losses have been relatively muted so far and in the case of the DAX not managed to seriously dent the year-end rally."

Europe's index of the leading 300 shares fell 0.2 percent to 1,426 points, with bank stocks down 0.8 percent.

Germany's DAX was also off 0.2 percent, while Britain's FTSE 100 eased by 0.1 percent from Tuesday's record closing high of 7,106 points.

The yen's strength, along with a 17 percent slump in Toshiba Corp's shares after news of potential massive writedowns led to a downgrade to its credit ratings, contributed to a 1.3 percent fall for the Nikkei.

MSCI's broadest index of Asia-Pacific shares outside Japan was last up 0.4 percent, helping to keep global stocks in positive territory with a slender 0.1 percent gain.

Tuesday's pullback on Wall Street came amid light volumes. Wednesday was the first session for which trades settle in January.

The Dow fell 0.56 percent, the S&P 500 lost 0.84 percent and the Nasdaq 0.89 percent. Weak home sales data were blamed for some of the selling.

U.S. bonds made a rare rally as the soft home sales report combined with surprisingly strong demand for a sale of new five-year Treasury notes. Yields on 10-year paper fell 5 basis points at one stage to a two-week low of 2.465 percent.

Euro zone yields were also falling on concerns about the strength of a rescue plan for Italian banks and normal year-end caution.

Germany's 10-year yields hit their lowest in seven weeks at 0.164 percent before recovering some ground, while their discount to Treasury yields reached its widest on record.

The yield gap kept the euro restrained around $1.0450, even in the face of broad dollar weakness, after touching an eight-session trough of $1.0372 overnight. The euro was still up by about 0.5 percent on the day.

The dollar eased by 0.6 percent against the yen to 116.55, while sterling recovered from a two-month low to trade 0.3 percent higher at $1.2263.

"The dollar fall was mostly due to renewed doubts about the U.S. recovery after pending home sales dropped in November. This is where the risk-off reversal started," said Ipek Ozkardeskaya, senior market analyst at London Capital Group.

In commodity markets, oil was mixed after data showed a surprise build in U.S. crude inventories. U.S. crude fell 0.2 percent to $53.95 a barrel, while Brent was last up 0.3 percent at $56.39. [O/R]

(Reporting by Jamie McGeever; Editing by David Goodman)

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