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New York - Wall Street stocks finished mostly lower on Thursday due to unease over the prospect of higher interest rates as Treasury bond yields hit multi-year highs.
Equity markets in Europe also were under pressure, while the dollar sagged against the euro and the pound.
US stocks have been under pressure all week, but spent several hours in the middle of the session in positive territory as new funds rolled in at the start of the new month before some investors took advantage of the upswing to take profits.
While the Dow eked out a gain by the close, the S&P 500 and Nasdaq finished lower.
Karl Haeling, vice president of LBBW, said bond yields crossed new thresholds, with yields on US 10-year Treasuries at their highest level since April 2014. That has sparked fears that rising interest rates will limit economic growth and encourage investors to steer money from stocks to bonds.
"Some people think we are ready for a correction and these people used the trade this morning as an opportunity to adjust their portfolios," Haeling said. "I don't think people are becoming bearish."
In Europe, the DAX slumped 1.4%, driven lower by a 2.6% drop in shares in Daimler, the manufacturer of Mercedes-Benz cars.
London was hampered by a strong pound, which tends to weigh on the share prices of multinationals that earn in currencies other than sterling, with the FTSE 100 index ending the day down 0.6%.
The FTSE also was dented by telecom giant Vodafone, which announced a drop in revenue during its third quarter, sending its share price slinking 4.6% lower.
In Asia, Tokyo's main stock index jumped almost 2.0% on a weaker yen and bargain-buying following a six-day losing streak.
The dollar rose against the yen, but tumbled against the euro and the pound amid expectations that other central banks will tighten monetary policy as global growth gains steam.
The dollar decline was in spite of Wednesday's policy statement by the US Federal Reserve that analysts viewed as more hawkish on inflation.
"The dollar did not get the lift we expected from the Fed monetary policy meeting yesterday," said ADS Securities analyst Konstantinos Anthis.
"Even though the central bank made it clear that they see inflation moving higher this year the US currency failed to capitalize on this news."
Kathy Lien, a foreign exchange expert at BK Asset Management, said the US currency could be primed for further declines if Friday's US jobs report for January shows weak wage growth.
Analysts expect the report to show the economy added 180 000 jobs last month as the unemployment rate held steady at 4.1%
"In an environment of dollar weakness, where investors are looking for any excuse to drive the currency lower, softer wage growth combined with an uptick in the unemployment rate would be disastrous for the greenback regardless of the level of job growth," Lien said.
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