Global stocks dip, yields inch up on US Fed rate hike talk

US Federal Reserve will likely tighten policy a bit more quickly in 2017 than this year, San Francisco Fed President John Williams said

Global stock markets edged lower while short-dated US Treasury yields held near two-month highs on Monday as investors weighed the possibility that US interest rates could soon rise.

Commodities were mostly lower. Oil prices fell for a fourth session in a row as investors worried about global supply, while gold declined to a 3-1/2-week low.

In the United States, an imminent rise in interest rates was looking more probable. The Federal Reserve will likely tighten policy a bit more quickly in 2017 than this year, by perhaps one or two more rate hikes, San Francisco Fed President John Williams said on Monday.

St Louis Fed President James Bullard said a relatively tight labour market in the United States may put upward pressure on inflation, boosting the case for higher interest rates.

The Fed surprised investors when the central bank's meeting minutes released last week opened the door to a rate hike as early as in June.

Topping the agenda this week is whether US economic data adds to the likelihood of a June or July rate increase.

MSCI's all-country world stock index was down 0.2%, while US stocks also ended slightly lower.

"The market needs to be coddled and gently eased into a slightly higher interest-rate environment, and that appears to be what the Fed is doing," said Tim Ghriskey, chief investment officer of Solaris Group in Bedford Hills, New York.

"Rates need to normalise, and the Fed needs to give itself room to lower again in the event of another financial crisis," Ghriskey added.

The Dow Jones industrial average closed down 8.01 points, or 0.05%, at 17,492.93, the S&P 500 lost 4.28 points, or 0.21%, to 2,048.04 and the Nasdaq Composite dropped 3.78 points, or 0.08%, to 4,765.78.

The pan-European FTSEurofirst 300 index of leading regional stocks ended down 0.5%.

Shares of Monsanto closed up 4.4% at $106 after Bayer unveiled a $62 billion bid for the US seeds company. Bayer AG fell 5.7% during the European session.

Short-dated US Treasury yields edged up, with the two-year yield hovering at its highest in two months on Fed rate-hike bets.

The two-year Treasury yield hit 0.905%, nearing the two-month peak of 0.920% set last Thursday, while benchmark 10-year Treasury notes were up 4/32 in price with a yield of 1.835%, down 1 basis point from Friday.

Investors also digested economic data that showed euro zone private-sector growth in manufacturing and services slowing a little in May, even though Germany continued to power ahead.

In currency markets, the US dollar tumbled nearly 1% against the yen on Japanese trade data and US resistance to currency intervention by Tokyo.

The dollar was last down 0.9% at 109.19 yen, while the dollar index, which measures the greenback against a basket of six major rivals, was last down 0.12% at 95.223.

Oil prices slid after Iran vowed to ramp up output and as a slump in the number of rigs drilling for crude in the United States stalled. Brent's front-month fell 37 cents to settle at $48.35 in a fourth straight day of losses, matching a similar streak in mid-April, while US crude fell 33 cents to $48.08 a barrel.

In the metals market, Gold dipped to a 3-1/2-week low on the Fed rate hike expectations, but prices came off their lows as late-day short-covering entered the market. Spot gold was down 0.1% at $1,250.96 an ounce after falling earlier to $1,242.63 an ounce, the lowest since April 28.