In This Article:
* Nasdaq, S&P dip, Dow holds gains midday
* Dollar hits highest since July 2020
* Oil prices slip after hitting 7-year high
* Graphic: Global asset performance http://tmsnrt.rs/2yaDPgn
* Graphic: World FX rates http://tmsnrt.rs/2egbfVh
By Pete Schroeder
WASHINGTON, Jan 27 (Reuters) - U.S. stocks painted a mixed picture Thursday as investors digested how strong economic news could inform the Federal Reserve's thinking on interest rate hikes, while the dollar hit its highest level in over a year.
After a solid opening, stocks retreated around midday, with the tech-heavy Nasdaq Composite and S&P 500 dipping into negative territory, dropping 0.65% and 0.16%, respectively.
The Dow Jones Industrial Average was up 0.12%. The MSCI world equity index, which tracks shares in 45 countries, was down 0.48%
Markets opened optimistically due to new data out Thursday morning showing the U.S. economy accelerated in the fourth quarter, growing 6.9% -- the fastest rate since 1984. But gains were pared as investors processed how strong economic growth might inform the Fed's thinking, after Chair Jerome Powell indicated at a Wednesday news conference that the central bank's primary concern remained inflation.
"This is clearly good news for the health of the U.S. economy, while it strengthens the case for an aggressive tightening policy from the Federal Reserve," said David Madden, market analyst at Equiti Capital. "The fact that U.S. stocks are higher despite the solid GDP reading could be a sign that dealers are getting used to the idea there could easily be four or five rate hikes this year."
DOLLAR SURGES
The prospect of faster or larger U.S. interest rate hikes helped push the dollar to its highest levels since July 2020.
In its latest policy update on Wednesday, the Fed indicated it was likely to raise rates in March, as widely expected, and reaffirmed plans to end its pandemic-era bond purchases that month before launching a significant reduction in its asset holdings.
Fed funds futures showed traders pricing in as many as five rate increases by December, after previously fully pricing for four.
The dollar index, which measures the greenback's value against other major currencies, had climbed 0.8%, in the day, its biggest single-day gain in more than two months.
Expectations of Fed tightening sent the policy-sensitive U.S. two-year yield to an intraday high of 1.208%, a level last reached in February 2020. The two-year yield dipped slightly to 1.1683% in midday trading.
The benchmark 10-year yield slipped to 1.7869% after hitting a high of 1.88% on Wednesday.