Euro gains on ECB; U.S. stocks slip with low volume

By Walter Brandimarte

NEW YORK (Reuters) – The euro rose on Monday on expectations of higher euro-zone interest rates while U.S. stocks slipped late in the day as concerns about the Middle East and Japan outweighed positive economic data.

The euro rose above $1.41 after European Central Bank President Jean-Claude Trichet said inflation is above the bank’s price stability target, adding to expectations interest rates could be raised as early as next month.

The single currency erased most of its gains later, however, pressured by worries that the defeat of German Chancellor Angela Merkel’s party in a key state election means she will have less leeway to offer financial support for debt-stricken members of the euro zone.

Data showing U.S. consumer spending rose for an eighth straight month initially supported equities, allowing European markets to finish near flat. But U.S. stocks erased early gains and closed lower as lingering worries about unrest in the Middle East and Japan’s nuclear disaster left investors cautious.

Trading volume was the lowest so far this year on the New York Stock Exchange and the Nasdaq. In Europe, volume in the FTSEurofirst 300 index reached only 60 percent of its 90-day average.

“It puts a cap on things for right now, at least until we start to see some earnings come out early in April. That might finally give us a little more upside, assuming that we have good earnings,” said Janna Sampson, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois.

“At some point people have got to price in Japan’s problems and the problems in the Middle East that we know about.”

Fears of disappointing U.S. corporate earnings also increased late in the day after hotel operator Marriott International warned that higher gasoline prices may dampen demand for leisure travel.

The Dow Jones industrial average (.DJI: Quote, Profile, Research) finished down 22.71 points, or 0.19 percent, at 12,197.88, while the Standard & Poor’s 500 Index (.SPX: Quote, Profile, Research) lost 3.61 points, or 0.27 percent, to 1,310.19. The Nasdaq Composite Index (.IXIC: Quote, Profile, Research) declined 12.38 points, or 0.45 percent, to 2,730.68.

Still, shares of AT&T Inc (T.N: Quote, Profile, Research) gained 1.8 percent, while Verizon Communications Inc (VZ.N: Quote, Profile, Research) rose 1.2 percent after brokerage Robert W. Baird upgraded them, saying AT&T’s deal to buy T-Mobile would help stabilize the hyper-competitive industry.

In Europe, the FTSEurofirst 300 (.FTEU3: Quote, Profile, Research) index of top shares closed 0.07 percent higher, supported by technology stocks.

The MSCI All-Country World Index (.MIWD00000PUS: Quote, Profile, Research) lost 0.34 percent.

Brent crude oil closed 79 cents lower at $114.80 a barrel as rebels regained control of key oil towns in Libya.

Yields on two-year U.S. Treasuries notes rose after an auction of two-year notes, the first in three weeks, indicated higher yields may be needed to attract bidders on this week’s five-year and seven-year note sales.

A $35 billion sale of two-year notes priced one basis point wider than where the notes had traded ahead of the sale, though bidding by indirect bidders was relatively strong at around 33 percent.

Two-year U.S. Treasury notes fell 2/32 in price, with the yield rising to 0.7563 percent.

The dollar was down against a basket of trading-partner currencies, with the U.S. Dollar Index (.DXY: Quote, Profile, Research) off 0.08 percent. The euro edged up 0.09 percent to $1.4093.

(Reporting by Chuck Mikolajczak, Julie Haviv and Karen Brettell in New York; Editing by Leslie Adler and Dan Grebler)

Euro gains on ECB; U.S. stocks slip with low volume