Dollar, Treasuries yields gain after strong US GDP

Credit: Reuters/Tobias Schwarz

Punctured euro banknotes which are used to train sniffer dogs, are presented to the media during a news conference on German custom's annual statistics, in Berlin March 21, 2014.

U.S. GDP expanded at a faster-than-expected 4.0 percent annual rate in the second quarter after shrinking at a revised 2.1 percent pace in the prior period, the Commerce Department said Wednesday. Economists polled by Reuters had forecast a 3.0 percent growth rate.

U.S. stocks opened higher, helped by the GDP report and some bullish earnings from tech companies like Twitter Inc (TWTR.N), but then turned lower ahead of a statement by the Federal Reserve later due in the session.

The Dow Jones industrial average fell 50.47 points or 0.3 percent, to 16,861.64, the S&P 500 lost 1.52 points or 0.08 percent, to 1,968.43 and the Nasdaq Composite added 14.06 points or 0.32 percent, to 4,456.76.

Following the strong GDP report, which may encourage the Fed to adopt a more hawkish tone, benchmark 10-year notes fell 12/32 in price to yield 2.51 percent.

Two-year notes yields, among the most sensitive to interest rate policy, increased to 0.58 percent, their highest since May 2011.

The MSCI's All-World Index was down 0.3 percent and European shares were down 0.5 percent, held back by cement makers. Switzerland's Holcim (HOLN.VX) and Germany's HeidelbergCement (HEIG.DE) reported disappointing results that they blamed on weak emerging-market currencies.

French oil major Total (TOTF.PA) was hit by concerns over its investments in Russia, following Tuesday's tightening of European sanctions on Moscow.

The U.S. dollar index, which measures the dollar against a basket of six major currencies, was last up 0.3 percent at 81.459, just under a 10-1/2-month high of 81.493 touched earlier in the session.

'The risks are certainly there that the Fed becomes more hawkish, since the rebound in GDP was pretty substantial,' said Brian Daingerfield, currency strategist at the Royal Bank of Scotland in Stamford, Connecticut.

The Fed is scheduled to release a statement at 2 p.m. EDT following the central bank's two-day policy meeting. It is expected to cut its monthly bond-buying program by another $10 billion, and traders are watching closely for signs of an eventual hike in rates from rock-bottom levels.

The strong GDP data overshadowed weaker-than-expected private-sector jobs data. The ADP National Employment Report showed U.S. companies hired 218,000 workers in July, below economists' expectations of 230,000.

Brent crude oil steadied below $108 a barrel on Wednesday, as ample supplies in Europe and Asia balanced worries over geopolitical risks.

Brent crude, which has been trading between $106 and $109 over the past two weeks, was down 3 cents at $107.69 a barrel. U.S. crude dipped 2 cents to $100.95 a barrel.

(Additional reporting by Marius Zaharia and Jemima Kelly; Editing by Catherine Evans and John Stonestreet)

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