By Richard Hubbard
LONDON (Reuters) - Surprisingly weak U.S. housing and labor market data erased the dollar's gains against the euro and the yen on Thursday and pointed to a lower start on Wall Street.
The number of Americans filing new claims for unemployment benefits climbed last week at the fastest pace in six months, a worrisome sign for the economy which has been hit by government austerity.
In other data, U.S. consumer prices fell in April by the most in more than four years on tumbling gasoline prices, while ground-breaking for new U.S. homes plummeted more than expected from a near five-year high.
The dollar dropped 0.2 percent against the euro to trade at around $1.2908. It had been flat at $1.2884 just before the data. It also traded at 102.18 yen, down 0.1 percent on the day reversing a 0.3 percent gain earlier.
The dollar's earlier strength came on talk of a tapering back in asset buying by the U.S. Federal Reserve, fuelled by Philadelphia Fed president Charles Plosser, who stressed the need for a slowdown in quantitative easing at a speech in Italy.
"Any signs of a tapering in quantitative easing by the Fed is able to have profound impact on market psychology and pricing," said Stephen Gallo, European head of FX strategy at BMO Financial Group.
S&P 500 futures fell 1.9 points after the data and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract.
Dow Jones industrial average futures fell 16 points and Nasdaq 100 futures rose 9 points.
MSCI's world equity index <.miwd00000pus> was flat but close to its best levels since mid-2008 after gains of nearly 11 percent this year.
Earlier expectations of more central bank stimulus in the euro zone - reinforced by data showing annual inflation was a below-target 1.2 percent in April - kept European shares near multi-year highs.
The FTSE Eurofirst 300 index <.fteu3> of top European shares was also little changed at 1,246.50, near to a five-year peak.
"Markets have rallied hard recently and in a low interest rate environment and with quantitative easing measures in place, equities are still the place to be," Jawaid Afsar, sales trader at SecurEquity, said. <.eu>
The sharp drop in annual euro zone consumer inflation was led by lower world oil prices, but the data also highlighted how households are not spending and companies are not investing, dampening hopes for a recovery a day after data showed the euro zone was mired in its longest ever recession.
The main German bond futures contract was 7 ticks higher at 144.75 after the inflation data.
Euro zone inflation: http://link.reuters.com/kuj24s
Euro zone real GDP: http://link.reuters.com/nyh28s
World interest rates: http://link.reuters.com/gam87t
In Asia MSCI's broadest index of Asia-Pacific shares outside Japan <.miapj0000pus> dipped 0.3 percent and Tokyo's Nikkei index ended down 1 percent as markets corrected following a rally on news that Japan's economy grew 0.9 percent in the first quarter.
The Nikkei hit a 5-1/2-year high earlier in the session after the data and is up a hefty 44 percent for the year to date.
Japan's growth rate was the quickest pace in a year and suggested the economic stimulus program launched by Prime Minister Shinzo Abe and the central bank was having an impact.
"There's now proof that Abenomics is working and that the economy is on a solid footing." said Yoshiki Shinke, senior economist, Dai-Ichi Life Research Institute in Tokyo.
The growth in the world's third-largest economy contrasts with an extended recession in the euro zone, worries about the health of China's recovery and follows a surprise drop in U.S. industrial output for April.
The uncertain outlook has weighed on commodity markets, which were mostly weaker again on Thursday.
Copper, seen as an economic bellwether because it is used extensively in construction and power cables, was down 0.5 percent at $7,163 a tonne, on track for a 3.3 percent drop this week and a fall of 10 percent so far this year.
Gold dropped for the sixth consecutive day, sliding as much as 1.6 percent to a low of $1,369.29 an ounce before paring some of the losses to trade down 1.2 percent at $1,375.50.
"Investors appear to be tired of gold as a safe haven as they anticipate the end of those loose monetary policies, possibly by the end of this year or maybe early next year," Mitsubishi analyst Jonathan Butler said.
(Additional reporting by David Brett and Clara Denina; Editing by John Stonestreet and Susan Fenton)