September 25, 2018 / 9:04 PM / 6 months ago

Energy shares rise on higher oil; dollar slips as policy tightening eyed

    * Bond yields rise on expectation of more policy tightening
    * Oil at four-year highs on supply concerns
    * Dollar slumps as investors anticipate Fed hike
    * GRAPHIC-World FX rates in 2018:

 (Adds Wall Street close; updates throughout)
    By Hilary Russ
    NEW YORK, Sept 25 (Reuters) - Energy stocks climbed on
Tuesday as oil prices surged above $81 a barrel, but U.S. shares
ended lower as chipmakes fell on ratings downgrades and
rate-sensitive shares lost ground ahead of an expected Federal
Reserve interest rate hike.
    The dollar weakened as the expected Fed rate hike has
already been priced in by investors. 
    The Dow Jones Industrial Average        fell 69.84 points,
or 0.26 percent, to 26,492.21, the S&P 500        lost 3.81
points, or 0.13 percent, to 2,915.56 and the Nasdaq Composite
        added 14.22 points, or 0.18 percent, to 8,007.47.
    The pan-European FTSEurofirst 300 index          rose 0.54
percent and MSCI's gauge of stocks across the globe
                gained 0.04 percent.
    "A lot of the noise around trade and anything else around
politics really hasn't suppressed consumer confidence nearly to
the degree that the other factors have boosted it," said Mike
Dowdall, investment strategist for BMO Global Asset Management,
in Chicago.
    Brent crude futures         touched a four-year high, at
$82.55 a barrel, catapulted by imminent U.S. sanctions on
Iranian crude exports and the apparent reluctance of OPEC and
Russia to raise output to offset the potential hit to global
    Oil prices pared gains, however, after U.S. President Donald
Trump, in a speech before the United Nations, called on OPEC
again to boost crude output.
    "The combination of tight supply, healthy demand, falling
global inventories – down from already under-stored levels – and
anemic spare capacity helps support an oil price which could end
the year above $90," Richard Robinson, manager of Ashburton's
Global Energy Fund, said.   
    U.S. crude         fell 0.01 percent to $72.07 per barrel.
Brent          was last at $81.56, up 0.44 percent on the day.
    The rise in energy shares, however, failed to squash broader
market pessimism a day after Washington and Beijing imposed new
tariffs on each other's goods, and Chinese Vice Commerce
Minister Wang Shouwen accused the United States of putting "a
knife to China's neck."             
    There are other big worries for investors too, not least the
timing and pace of central bank policy tightening.
    The Fed is widely expected to hike rates when it ends its
two-day policy meeting on Wednesday, in a third increase in
2018. European Central Bank President Mario Draghi on Monday
raised expectations the euro zone will also start to normalize
policy over the coming year by referring to "relatively
vigorous" underlying inflation and brisk wage growth.
    U.S. 10-year Treasury yields held near a new four-month high
above 3.10 percent after a $38 billion government debt sale on
    Benchmark 10-year notes             last fell 6/32 in price
to yield 3.0983 percent, from 3.078 percent late on Monday.
    The U.S. dollar weakened ahead of the Fed's policy decision,
as investors have already priced in two more interest rate
increases this year and some in 2019, leaving little room for
further currency gains.             
    The dollar index        fell 0.05 percent, with the euro
       up 0.18 percent to $1.1767.
    Since mid-August, the dollar has declined 3.1 percent
against the index's basket of six major currencies.
    "The U.S. dollar appears vulnerable ... given extended
speculative bullish positioning against most of the G10
currencies and considerable tightening already reflected in fed
funds futures," said Eric Theoret, currency strategist at
Scotiabank in Toronto.
    The drifting dollar helped gold edge higher. Spot gold
       added 0.2 percent to $1,200.71 an ounce.

 (Reporting by Hilary Russ
Additional reporting by Jessica Resnick-Ault, Richard Leong,
Gertrude Chavez-Dreyfuss, Caroline Valetkevitch, Renita D. Young
and Maytaal Angel in New York; Editing by Andrea Ricci)
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