By Herbert Lash and Tom Wilson
NEW YORK/LONDON World share markets lost momentum on Tuesday as investor optimism that interest rates have peaked and the Federal Reserve will soon begin cutting them faded, while the dollar made gains as appetite for riskier currencies ebbed.
Gold hit a two-week low as the safe-haven rally triggered by Mideast tensions eased and oil prices hit fresh 2-1/2-month lows as mixed economic data from China offset the impact of Saudi Arabia and Russia extending output cuts.
U.S. equities edged higher but stocks were lower across Europe as investors seek signs of pushback from U.S. central bank officials after expectations that rates have peaked jumped last week following dovish comments by Fed Chief Jerome Powell.
Minneapolis Fed President Neel Kashkari on Tuesday doused hopes of early rate cuts, saying the U.S. central bank may have to do more to bring inflation back down to its 2% target.
But Chicago Fed President Austan Goolsbee said the Fed has made significant inroads on slowing inflation to target and if that continues, attention will turn to how long to keep rates at current levels.
"We're in for a how much longer cycle of higher rate than the most bullish people are expecting," said Rick Meckler, partner at Cherry Lane Investments in New Vernon, New Jersey. "Inflation is something that we've learned is hard to tamp down once it really gets going."
But ultimately driving investor decisions is whether there is going to be a meaningful recession or not, he said.
"All the other things that surround market movement are just reflections of whether it's more likely to cause a recession or less likely to cause a recession."
MSCI's gauge of global stock performance shed 0.05%, while the pan-European STOXX 600 index lost 0.06%.
On Wall Street, the Dow Jones Industrial Average rose 0.28%, the S&P 500 gained 0.39% and the Nasdaq Composite added 0.93%.
The dollar advanced as last week's rally in riskier currencies took a breather, gaining on the euro after a larger-than-expected fall in German industrial production in September.
Against a basket of currencies, the dollar index rose 0.332% to 105.61, with the euro down 0.31% to $1.0682.
The euro and most other currencies gained sharply on the dollar last week after various data - most notably a U.S. labor report that showed job growth slowed in October.
Currency traders were also focused on the Australian dollar, which fell about 1.1% to $0.642 after the Reserve Bank of Australia announced a 25 basis point hike, as expected, taking the cash rate to a 12-year high of 4.35%.
But the central bank softened its language on the necessity of any further action.
Treasury yields slid, having unwound some of their rally last week after the Fed left rates unchanged following a policy meeting.
The two-year's yield, which reflects interest rate expectations, fell 1.3 basis points to 4.928%, while the 10-year slipped 7.5 basis points at 4.587%.
"There was quite a bit of euphoria at the end of last week on the belief that the Fed is done, the jobs market is slowing, that the U.S. economy is going to experience a soft landing," said Michael Hewson, chief market analyst at CMC Markets UK.
"People have started to become a bit more clear-eyed. There is the risk that the Fed could rise again."
Earlier, MSCI's broadest index of Asia-Pacific shares outside Japan slipped 1.2%, snapping three straight days of gains.
In China, data showed imports unexpectedly grew in October, while exports contracted faster than expected, in a mixed set of indicators that showed the recovery in the world's second-largest economy remains uneven.
Hong Kong's Hang Seng fell 1.7%, while mainland China blue chips fell 0.4%.
U.S. crude fell 3.17% to $78.26 per barrel and Brent was at $82.53, down 3.11% on the day.
(Reporting by Tom Wilson in London and Tom Westbrook in Singapore; Additional reporting by Ankur Banerjee in Singapore; Editing by Lincoln Feast, Kim Coghill, Christina Fincher and Jonathan Oatis)