Wall Street eases, dollar up on March Fed rate hike bets

By Sinead Carew

NEW YORK (Reuters) - Wall Street pulled back from Wednesday's records while the dollar strengthened on positive U.S. data and growing expectations the Federal Reserve will soon raise interest rates.

Treasury yields also rose after Fed Governor Lael Brainard, the third official from the U.S. central bank to make a hawkish statement this week, said late Wednesday that an improving global economy and a solid U.S. recovery meant it would be "appropriate soon" to raise rates.

Fed Chair Janet Yellen is set to speak on the economic outlook in Chicago on Friday in her last speech before the Fed's March 14-15 meeting.

Federal funds futures prices suggest markets now see a 75-percent chance of a 25-basis-point rate hike in March, up from 66 percent on Wednesday and 35 percent on Tuesday, according to CME Group's FedWatch tool.

The prospect of higher rates pushed equities down on Thursday, compounding the pressure after Wednesday's rally.

"This is a recognition we went up too much yesterday," said Robert Phipps, a director at Per Stirling Capital Management in Austin, Texas, adding that the stock market is "overdue for a correction" because valuations are so high.

At 2:23 p.m. (1923 GMT), the Dow Jones Industrial Average was down 70.13 points, or 0.33 percent, to 21,045.42, the S&P 500 had lost 11.35 points, or 0.47 percent, to 2,384.61 and the Nasdaq Composite had dropped 32.84 points, or 0.56 percent, to 5,871.19.

MSCI's global stocks index was down 0.4 percent after touching an intraday record high.

The dollar index , which measures the greenback against a basket of six major currencies, was up nearly 0.5 percent at seven-week highs helped by data as well as rate hike bets. The number of Americans filing for unemployment benefits fell to a nearly 44-year low last week, pointing to further tightening of the labour market.

The dollar has strengthened even as many analysts see limited further gains for the currency due to worries about the impact of higher rates and a stronger dollar on global growth.

The greenback was last up 0.7 percent against the Japanese yen , the highest since Feb. 15, while the euro fell 0.5 percent to $1.0498 .

In fixed income markets, U.S. Treasury yields pushed higher on the prospect of higher rates. U.S. 2-year yields hit their highest since August 2009 of 1.32 percent while the 3-year yield hit a nearly 11-week high of 1.598 percent. The 10-year note yield hit a more than two-week high of 2.50 percent.

Oil prices fell for a third consecutive day after a record build-up in U.S. crude inventories and data showing Russian oil production cuts have stalled. Brent crude fell 2.2 percent to $55.10 a barrel. U.S. crude was also down 2.2 percent at $52.66. [O/R]

The dollar put metals prices under pressure. Copper fell 1.5 percent to $5,927.50 a tonne while gold fell 1.3 percent to $1,232.52 an ounce.

(Additional reporting by Karen Brettell and Samuel Forgione in New York, Nigel Stephenson, John Geddie, Dhara Ranasinghe and Christopher Johnson in London, and Hideyuki Sano in Tokyo; Editing by Nick Zieminski and James Dalgleish)