Global stocks slip, dollar retreats on Fed uncertainty

Global equity markets traded slightly lower on Tuesday while the dollar and US Treasury yields eased on a growing view that the Federal Reserve will need additional positive data before it decides to scale back its economic stimulus.

The euro hit a six-week high against the dollar as traders reconsidered whether the Fed would trim its monthly purchases of $85 billion in bonds at its two-day meeting next week. Earlier, the euro hit a five-year peak against the yen.

Even if the Fed were to signal a pullback in bond purchases, policymakers will likely opt for a small one to prevent a bond market selloff, which would send long-term interest rates higher and hurt the U.S. housing market.

"We might see a gradual tapering. The Fed won't let rates go much higher," said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co. in New York.

At the same time, increased speculation that a banking union with the power to close failing banks will be created in the euro zone before the end of 2014 lifted the euro.

Euro zone countries edged closer on Tuesday to agreeing on a plan to close ailing banks and share the costs, a move that would pave the way for a fundamental reform to underpin the euro and the region's banks.

A banking union is widely viewed as crucial to shore up the euro zone against future debt and financial crises.

"There's some expectation that a deal may be reached before year-end, and that is supportive of the euro," said Sireen Harajli, currency strategist at Mizuho Bank Ltd. in New York.

The euro gained for a sixth straight day versus the greenback and was within sight of this year's high of $1.3832. It last traded up 0.2 percent 1.3766.

Against the yen, the euro pared early gains to trade down 0.33 percent at 141.40.

The euro's rise caused the dollar index to extend losses into a second straight day. It fell to six-week lows, dragged down by lower U.S. Treasury yields, as investors mostly downplay the prospect of a reduction in the Fed's asset purchases this month.

The dollar index was down 0.23 percent at 79.953.

The 10-year Treasury note was 16/32 higher in price to drive its yield down to 2.797 percent.

European shares slipped, weighed down by major Swiss stocks as a rally in the Swiss franc raised fresh concern about the country's exports.

The pan-European FTSEurofirst 300 index closed down 0.74 percent at 1,262.98.

The Dow Jones industrial average ended down 52.40 points, or 0.33 percent, at 15,973.13. The Standard & Poor's 500 Index dropped 5.75 points, or 0.32 percent, to 1,802.62. The Nasdaq Composite Index fell 8.26 points, or 0.20 percent, to 4,060.49.

U.S. crude rose as traders mulled news of progress toward the opening of a major pipeline that will transport oil from the U.S. Midwest to the Gulf, helping drain crude at the pricing point for the futures contract.

The news presaged further drawdowns in overall U.S. crude oil inventories for a second straight week.

The prospect of increased supply of Brent crude and less landlocked U.S. crude helped narrow the spread between the two contracts to a month-low of $10.48 earlier in the session.

The January contract for U.S. light crude futures rose $1.17 to settle at $98.51.

Brent crude for January delivery settled 1 cent lower at $109.38 a barrel. Brent dropped 2 percent on Monday, its biggest loss in five weeks.