Global Markets: Aussie dollar tumbles; U.S. shutdown jitters dent stocks

By Chuck Mikolajczak

NEW YORK (Reuters) - The Australian dollar tumbled on Wednesday after its central bank signaled a possible interest-rate cut, in the latest indication a global economic slowdown is tilting policymakers towards slowing rate hikes, while worries of another U.S. government shutdown weighed on stocks.

A gauge of world equity markets stalled just shy of two-month highs on concerns over growth and another possible U.S. government shutdown in the wake of President Donald Trump's State of the Union address on Tuesday. European shares were modestly higher.

Australia's central bank was the latest to signal policy easing in the face of economic headwinds. Last week, the U.S. Federal Reserve said it would be patient with regard to further rate hikes, while the European Central Bank also sounded less certain that it will start tightening policy later this year.

The about-face pushed the Australian dollar down 1.53 percent against the U.S. dollar, putting it on track for its biggest daily drop since November 2016. In turn, the dollar moved higher against a basket of major currencies.

"We are starting to see central banks follow (Fed Chair Jerome) Powell's lead," said Chris Gaffney, president of world markets at TIAA Bank in St. Louis. "That's what's actually contributed to this dollar rally that we have seen recently."

The dollar index, tracking the unit against six major currencies, rose 0.2 percent, with the euro down 0.3 percent to $1.1378. The index is on pace for a fifth day of gains.

In his address, Trump vowed to build a wall at the U.S.-Mexico border, a divide with Democrats that had led to the previous 35-day partial government shutdown.

"While he wasn't confrontational, he still didn't reach out an olive branch across the aisle in any manner. Both sides still seem dug in so there's a real fear that we are going to head toward another government shutdown," said Gaffney.

The Dow Jones Industrial Average fell 5.66 points, or 0.02 percent, to 25,405.86, the S&P 500 lost 4.06 points, or 0.15 percent, to 2,733.64 and the Nasdaq Composite dropped 14.25 points, or 0.19 percent, to 7,387.83.

European stocks were buoyed by gains in banking shares, despite a fall in BNP Paribas after the French-listed bank lowered its profit and revenue growth targets for 2020. British lender CYBG jumped after posting a rise in lending growth.

The pan-European STOXX 600 index rose 0.15 percent and MSCI's gauge of stocks across the globe shed 0.18 percent.

The dovish shift by the Fed, along with evidence of slowing growth in Germany in the form of falling industrial orders for December, also pushed U.S. Treasury yields lower.

Benchmark 10-year notes last rose 4/32 in price to yield 2.6911 percent, from 2.704 percent late on Tuesday.

The concerns over slowing global growth spread to energy demand, along with a report showing a rise in U.S. crude inventories.

U.S. crude rose 0.88 percent to $54.13 per barrel and Brent was last at $62.65, up 1.08 percent on the day.

(Additional reporting by Lewis Krauskopf; Editing by Bernadette Baum)