By Riva Gold
Stocks inched higher and the dollar eased off a 14-year high Friday as investors paused bets driven by expectations of higher U.S. interest rates.
Futures pointed to a 0.2% opening gain on Wall Street, putting the Dow Jones Industrial Average back on track to reach the 20000 mark for the first time.
The Stoxx Europe 600 inched up 0.2% late morning, while government bonds, gold and the yen showed signs of stabilizing after posting steep declines earlier this week.
The Federal Reserve raised interest rates Wednesday for the first time in a year and signaled a quicker-than-expected pace of rate rises in 2017, initially sending investors out of assets such as U.S. Treasurys and bond-proxies in the stock market.
Some investors were questioning Friday whether the moves were overdone, noting the Fed's projections for future rate increases have often differed from eventual decisions on monetary policy.
"We're finishing the year on this wave of optimism," said Mitul Patel, head of interest rates at Henderson Global Investors.
U.S. stocks rekindled a post-election rally on Thursday after initially falling on the Fed's projections. The Dow is up over 5% from a month ago, on track to end 2016 nearly 14% higher than it started.
"Stocks are hovering around highs, but it feels like we're on a bit of a tightrope at the moment," he said. "You need growth to be good and inflation to be okay, but you need the Fed not to sound too hawkish.... if the Fed or the data disappoint, it could come under pressure."
A mild pullback in the dollar on Friday helped support sentiment towards stocks. Many investors have been concerned about the rapid appreciation of the dollar, which could hamper a widely expected U.S. earnings recovery and make it more difficult to make back the trillions in dollar-denominated debt around the world.
The WSJ Dollar Index, which tracks the dollar against a basket of 16 currencies, was last down 0.2%.
"As the dollar appreciation has been very intense and rapid, we cannot rule out that softer housing data today in the U.S. may trigger some profit-taking and position paring," said Vasileios Gkionakis, currency strategist at UniCredit.
The euro climbed back 0.4% against the dollar to $1.0457 after touching its lowest level since 2003 on Thursday.
In government bond markets, the yield on the 10-year U.S. Treasury note fell to 2.565% from 2.580% on Thursday, its highest in over two years, while its German counterpart fell to 0.316% from 0.367%. Yields move inversely to prices.
Greek 10-year yields fell to 7.304% from 7.428% after Greece's central bank said the country must stick to its bailout commitments if it wanted to end a dispute holding back efforts to secure debt relief. Eurozone officials have criticized Athens for failing to consult creditors before making fiscal moves that could affect its bailout goals.
Earlier, Japanese stocks touched a 2016 high after Wall Street's recovery on Thursday, even as stocks in Australia and Hong Kong posted modest declines.
Stocks in Shanghai inched up 0.2% but ended the week more than 3% lower. Since the U.S. election, investors have grown more worried about emerging markets.
"The concerns are higher rates, a stronger dollar, and Trump-specific trade friction coming up," said Anthony Cragg, who manages emerging market funds at Wells Fargo Asset Management.
Mr. Cragg argues the fears are overdone, noting a stronger U.S. economy could offset the climb in the dollar and help support emerging markets.
In commodities, gold clawed back some ground after settling at its lowest since February, and was last up 0.7% at $1,136 an ounce. Copper prices fell, however, while Brent crude oil was flat at $54.06 a barrel.
Stelios Bouras contributed to this article.
Write to Riva Gold at firstname.lastname@example.org
(END) Dow Jones Newswires
December 16, 2016 07:02 ET (12:02 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.