World stock markets down a third day

By Barani Krishnan

NEW YORK (Reuters) - U.S. stocks ended lower on Wednesday for a fourth session while Treasury yields rose as traders were cautious ahead of jobs data later in the week that could determine whether the Federal Reserve will cut its stimulus soon.

Strong data on U.S. private-sector jobs growth and home sales raised expectations that the Fed will roll back its $85 billion of monthly bond buying sooner than later.

But a weaker-than-expected report on service-sector growth led some strategists to think the central bank will hold off until the economy is on firmer footing.

The to-and-fro of when the Fed will begin paring its stimulus has dominated market headlines for months. Friday's November non-farm payrolls report may tip the balance yet again, analysts and traders say.

"Stronger economics means earlier tapering, which is a negative for the market," said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland. He added that the pullback "could be more pronounced, the more people focus on the Fed."

The Dow Jones industrial average lost 24.85 points, or 0.16 percent, to end at 15,889.77. The Standard & Poor's 500 Index fell 2.34 points, or 0.13 percent, to finish at 1,792.81. But the Nasdaq Composite Index inched up 0.80 of a point, or 0.02 percent, to close at 4,038.00.

Equities initially declined, then rebounded after the ADP numbers before turning lower again, with choppy trading in the last half hour.

Payroll processor ADP said the U.S. private sector added jobs in November at the fastest pace in a year. ADP reported 215,000 new hires were added last month, versus analysts' expectations for 173,000.

But a weaker-than-expected report on service-sector growth tempered the market's concerns over the Fed somewhat.

"The data continues to be mixed. The Fed is not tapering in December the way everyone started to chatter the last couple of days and the market now realizes that," said Ken Polcari, director of the NYSE floor division at O'Neil Securities in New York.

Polls of analysts and traders still point firmly to the U.S. central bank holding fire until March. But the ADP data and housing sales data reheated speculation the Fed could move earlier, and that boosted U.S. Treasury yields.

The 10-year benchmark yield rose to 2.85 percent at one point, the highest since mid-September. The 10-year U.S. Treasury note was down 15/32, its yield at 2.8297 percent.

The data also caused the spread, or yield differential, between short- and long-dated bonds to widen. An increasing difference is generally considered a sign of positive expectations for economic growth.

Investors are worried that a reduction in stimulus will cause a sharp rise in interest rates, raising borrowing costs for mortgages and other loans that will pinch economic demand.

World stock markets fell for a third straight day, with Europe taking another tumble and Japan's Nikkei index recoiling from Tuesday's surprising six-year highs.

In commodities, benchmark Brent crude oil edged lower after a two-day rally and gold rebounded from five-month lows.

The pan-European FTSEurofirst 300 and MSCI's world share index both fell 0.6 percent. The Nikkei lost 2.2 percent overnight.

The dollar edged lower against the euro, trading at $1.3592, after an initial 0.3 percent gain sparked by euro zone service sector data that showed weaker November activity in Italy and France and growth in Spain and Germany.

The Australian dollar took its biggest fall since July, hitting a three-month low of $0.8999 after data showed the economy running more slowly than expected.

In the oil market, benchmark Brent crude initially jumped to above $113 a barrel ahead of this week's OPEC meeting before ending at $111.88, down 74 cents. U.S. crude bucked the trend, settling up $1.16 at $97.20 per barrel after a sharp U.S. inventory drop.

Gold, which like stocks has benefited from the U.S. stimulus because of inflation fears, rose 1.6 percent to above $1,240 an ounce after Tuesday's five-month low of $1,215.60.

(Editing by Catherine Evans, Leslie Adler, Meredith Mazzilli and Dan Grebler)