Dow’s 20,000 barrier, weak European banks dent stocks

European shares, the dollar and bond yields fell on Thursday, with traders using the quiet holiday period to book some profit on the rise that had lifted all three to multi-year and in some cases record highs recently.

Weakness in European financial stocks helped push broader indices into the red, extending the slippage after soft US housing data the previous day.

The yield on 10-year US Treasury notes slipped to a two-week low, pulling the dollar to a two-week low against the yen.

“The dollar fall was mostly due to renewed doubts about the US recovery after pending home sales dropped in November. This is where the risk-off reversal started,” said Ipek Ozkardeskaya, senior market analyst at London Capital Group.

“This pushed the exhausted US bulls to the sidelines and triggered a sell-off in both the dollar and US stocks. We’re seeing a bit of follow through in Europe today,” she said.

The Dow Jones has reached record peaks in December and has come within 100 points of the 20,000 mark on the last 11 consecutive trading sessions, seven of them within 50 points.

The yen’s strength, along with a 16 per cent slump in Toshiba Corp’s shares after news of potential massive writedowns led to a downgrade of its credit ratings, saw the Nikkei shed 1.3 per cent.

Europe’s index of leading 300 shares fell 0.3 per cent to1,425 points, with bank stocks down 0.8 per cent.

Germany’s DAX was off 0.3 per cent too, while Britain’s FTSE 100 eased 0.2 per cent from Tuesday’s record closing high of 7,106 points.

MSCI’s broadest index of Asia-Pacific shares outside Japan was last up 0.3 per cent, helping to keep global stocks in positive territory by the most slender margin of 0.1 per cent.

The pullback on Wall Street Tuesday came amid light volumes. Wednesday was the first session when trades settle in January.

The Dow fell 0.56 per cent, while the S&P 500 lost 0.84 per cent and the Nasdaq 0.89 per cent. Weak homesales data were blamed for some of the selling.

US bonds made a rare rally as the soft home sales report combined with surprisingly strong demand for a sale of new five-year Treasury notes. Yields on 10-year paper fell 3 basis points to their lowest in two weeks at 2.48 per cent.

Euro zone yields were also falling on concerns about the strength of a rescue plan for Italian banks and normal year-end caution.

Germany’s 10-year yields hit their lowest in seven weeks at 0.164 per cent, while their discount to Treasury yields reached the widest on record.

The widening yield gap kept the euro restrained around $1.0450 even in the face of broad dollar weakness, after touching an eight-session trough of $1.0372 overnight. The euro was still up around 0.5 per cent on the day.

The dollar eased 0.6 per cent on the yen to 116.50,while sterling recovered from a two-month low to trade 0.3 per cent higher at $1.2263.

“Yesterday’s US pending home sales number disappointed. Falling US yields pushed the dollar generally lower,” saidMarshall Gittler, head of investment research at FXPrimus.

In commodity markets, oil was mixed after data showed a surprise build in US crude inventories. US crude fell 0.2 per cent to $53.95 a barrel, while Brent was last up 0.2 per cent at $56.32.