(Updates to close of U.S. trading)
By David Randall
NEW YORK, March 21 (Reuters) - Concerns over further trade tariffs and a widely expected interest rate hike by the Federal Reserve left world stocks flat after a choppy session Wednesday as investors tried to balance out the effects of low inflation and higher trading costs on the global economy.
Stocks had initially rallied and pushed the Dow Jones Industrial Average up more than 200 points after the Fed raised benchmark U.S. interest rates by 0.25 percentage point, as expected, at the conclusion of a two-day policy meeting and said growth in the U.S. economy continues to look strong.
The Fed’s measures of inflation were little changed, helping reassure investors that the U.S. central bank may not raise rates more than three times this year.
But stock prices began to come under selling pressure after Fed Chair Jerome Powell said in a later press conference that some participants in the Federal Open Market Committee said they had heard concerns about the effect of future trade tariffs on global growth.
“A number of participants in the (committee) did bring up the issue of tariffs,” Powell said. “If I could summarize, what came out of it was, first, there’s no thought that changes in trade policy should have any effect on the current outlook.”
However, “a number of participants reported that about their conversations with business leaders around the country and reported that trade policy has come a concern going forward for that growth.”
The Dow Jones Industrial Average fell 44.96 points, or 0.18 percent, to close at 24,682.31, the S&P 500 lost 5.01 points, or 0.18 percent, to 2,711.93 and the Nasdaq Composite dropped 19.02 points, or 0.26 percent, to 7,345.29.7,345.29
The dollar index fell 0.79 percent, with the euro up 0.85 percent to $1.2344. MSCI’s gauge of stocks across the globe shed 0.07 percent.
“So far, we have seen low-level (trade) skirmishes, which are not material enough to affect the world economy. But if we see retaliation, and significant trade disruptions, it’s a different order of magnitude (which) could begin to affect global growth forecasts,” said Andrew Milligan, head of global strategy at Aberdeen Standard Investments.
World markets had traded lower earlier after the Wall Street Journal reported that China was planning counter-measures against U.S. trade tariffs. European shares fell and investors scurried for the safety of German government bonds and the Japanese yen.
Shares of Facebook Inc edged 0.7 percent higher after two days of steep losses that had wiped some $50 billion off the value of shares of the social media company. Those declines, caused by uproar over the alleged misuse of user data, filtered through the tech sector, with technology companies in the benchmark S&P 500 down 2 percent for the week to date.
A pan-European equity index was off 0.2 percent after the WSJ report on China.
The tech selloff was a serious setback to markets just as they recovered from an early-February selloff, Milligan said, noting tech had been “the leading light of U.S. and Asian equity markets for over a year.”
The WSJ report on potential Chinese tariffs comes as U.S. President Donald Trump prepares to announce on Friday up to $60 billion in import duties on Chinese goods. He imposed tariffs on imported steel and aluminum earlier this month.
This week’s meeting of finance ministers and central bankers of the world’s 20 biggest economies failed to defuse tensions, with the G20 saying only that it recognized the need for more “dialogue and actions.”
Fears of a trade war have also weighed on commodity prices, though tensions in the Middle East supported oil.
Energy stocks in the S&P 500 gained 2.6 percent after a surprise decline in U.S. oil inventories and as worries persisted over rising tensions in the Middle East.
U.S. crude rose 2.99 percent to $65.44 per barrel and Brent was at $69.70, up 3.38 percent.
Benchmark 10-year U.S. Treasury notes were last flat in price to yield 2.881 percent, unchanged from late Tuesday. (Editing by Jennifer Ablan and James Dalgleish)