By Riva Gold

Stocks and the dollar edged lower while bond yields rose Thursday as updates on U.S. and European monetary policy captured investors' focus.

The European Central Bank left its interest rates and bond purchase program unchanged at the conclusion of its meeting Thursday as widely expected after shaking up its policy mix in December.

The Stoxx Europe 600 inched down 0.2% in afternoon trading, while the euro inched up slightly to $1.0675 ahead of a press conference with ECB President Mario Dragh at 13:30 GMT.

Most market participants expect Mr. Draghi to offer few new clues about the bank's massive bondpurchase program at this juncture, but his tone will be watched carefully following recent improvements in the eurozone economy.

"There's absolutely no argument for Draghi to change anything," said Franck Dixmier, Global Head of Fixed Income at Allianz Global Investors. "It's really too early."

In the U.S., futures pointed to a 0.1% opening loss for the S&P 500 while the WSJ Dollar index dipped 0.1% after its biggest daily gain of the year. Robust U.S. inflation data and comments Wednesday from Federal Reserve Chairwoman Janet Yellen pushed up expectations for higher U.S. interest rates, sending shares of financials, bond yields, and the dollar higher.

Ms. Yellen warned that waiting too long to raise interest rates could invite a "nasty surprise" of inflation.

10-year German bund yields climbed to 0.310% Thursday from 0.272% Wednesday but were little moved by the ECB decision, while the yield on the 10-year Treasury noterose to 2.440% Thursday from 2.391% previously. Yields move inversely to prices.

More speeches from Fed officials are expected to shed light on U.S. rates later Thursday.

"With only two hikes totally priced in, there's a kind of fragility here, " said Mr. Dixmier. "Higher inflation pressure means the Fed will have to act."

The dollar has also seen sharp swings in both directions this week ahead of President-elect Donald Trump's inauguration on Friday, rippling across global stocks, currencies and fixed-income markets.

Hedge funds bought the dollar in the weeks following the November election, betting the president-elect would implement fiscal stimulus and deregulation but that the threats against China and other trading partners wouldn't really lead to actual policies, according to Athanasios Vamvakidis, currency strategist at Bank of America Merrill Lynch.

Many of those same investors have pulled back recently following recent comments from Mr. Trump, he said, even though the moves have been gradual. "In a way, the market sees a 'good Trump' and a 'bad Trump'," he said. The good Trump is associated with business-friendly policy, deregulation, and fiscal stimulus, while the bad one is confrontational in foreign policies and pushes for more trade protection, he said.

Back in stock markets, shares of Kinder Morgan led declines in U.S. premarket trading after the company swung to a profit in the final quarter but revenue declined more than expected.

In Europe, shares of Zodiac Aerospace were up nearly 22% after French aerospace supplier Safran said it had agreed to buy the beleaguered cabin-interiors specialist. Shares of Safran fell 0.5%.

Europe's oil and gas sector declined after oil prices fell sharply on Wednesday. Brent crude rose 1% early Thursday to $54.47 a barrel but remained down nearly 2% so far this week.

Earlier, Japan's Nikkei Stock Average rose 0.9% as a weaker yen lifted the export-heavy index. The dollar later gave up gains against the yen to trade down 0.1% at Yen114.5810.

Shares of Toshiba fell sharply following a local news report that the company's nuclear power-related losses could top expectations. Toshiba said the report isn't based on what it has announced.

Bourses elsewhere in Asia mostly edged lower, with Hong Kong's Hang Seng down 0.2% and the Shanghai Composite Index off 0.4% at its lowest closing value of the year.

Kosaku Narioka contributed to this article.

Write to Riva Gold at riva.gold@wsj.com

(END) Dow Jones Newswires

January 19, 2017 08:43 ET (13:43 GMT)

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