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GLOBAL MARKETS-Wall Street down, dollar spikes as investors review recovery bets

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·3 min read
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* Major U.S. indices open sharply lower

* Treasury yields rise; dollar near two-month highs

By Huw Jones and Pete Schroeder

LONDON/WASHINGTON, June 18 (Reuters) - Wall Street opened lower on Friday as investors reassessed their stance after the Federal Reserve projected interest rate hikes arriving sooner than once thought, while the dollar and U.S. Treasury yields continued to gain ground.

All three major U.S. indices opened down, with the Dow Jones Industrial Average off 382.96 points, or 1.13%, the S&P 500 down 32.76 points, or 0.78%, and the Nasdaq Composite losing 63.01 points, or 0.44%.

The MSCI world equity index, which tracks shares in 45 nations, fell 6.43 points or 0.9%.

The sell-off in the U.S. sharpened after St. Louis Federal Reserve President James Bullard told CNBC that inflation was more intense than expected. His remarks came two days after Fed officials projected interest rate hikes as soon as 2023, even while vowing to keep up strong monetary support while the economy recovered.

Following Bullard's comments, the U.S. dollar index jumped to 92.270, the highest in more than two months, and U.S. 10-year Treasury yields climbed back above 1.5% after Thursday's drop.

"It's a bit of dust settling, with no panic and the grown-up reaction is encouraging," said Ned Rumpeltin, European head of currency strategy at TD Securities.

While the Fed's messaging on Wednesday indicated no clear end to supportive policy measures such as bond buying, signals of sooner-than-expected rate hikes indicated its concern about inflation as the U.S. economy recovers from the COVID-19 pandemic.

Friday is also "quadruple witching day" on Wall Street, when options and futures on stocks and stock indexes expire, which can trigger volatility in markets near the close of trading.

The dollar was heading for its best week in nearly nine months as investors priced in sooner-than-expected ending to extraordinary U.S. monetary stimulus.

Strength in the greenback pushed oil lower for a second straight session, while spot gold remained down around 5% for the week after the Fed dented the yellow metal's safe-haven appeal.

In Europe, the pan-European STOXX index dropped 1.31% to 453.34 point, down from Monday's record high of 460.51.

INFLATION GENIE

"What is pretty obvious is that the inflation genie is starting to sneak out of the bottle, and that will be a major driver of interest rates in the short-to-medium term," said James McGlew, executive director of corporate stockbroking at Argonaut in Perth.

In Europe, analysts were already asking if the Bank of England, whose monetary policy committee meets next week, will follow in the Fed's footsteps and adopt a more bullish tone on the economy and what that would mean for UK stimulus and interest rates.

Gold prices, which plunged following the Fed's statement, edged higher but were still set for their worst week since March 2020. Spot gold was last up 0.1% at $1,775 per ounce.

Higher expectations of inflation continued to lift long-dated U.S. Treasury yields. Benchmark 10-year notes yielded 1.5056%.

Oil prices took a hit from the strong dollar as concerns over demand and new Iranian supply weighed.

Global benchmark Brent crude was down 0.04% at $73.06 a barrel after settling at its highest price since April 2019 on Wednesday. U.S. West Texas Intermediate crude, which touched its highest level since October 2018 on Wednesday, was up 0.37% to $71.29.

(Additional reporting by Thyagaraju Adinarayan, Andrew Galbraith and Tom Westbrook; Editing by Alexander Smith, Mark Potter and Dan Grebler)

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