Wall Street, yields take a breather as investors await more from US Fed

Wall Street muddled through mixed territory Friday and U.S. yields retreated from a recent surge, as investors bided time ahead of further interest rate insight from the Federal Reserve next week.

Global shares were stuck around two-month lows, but Wall Street shook off early losses to relatively flat ground by midday. The Dow Jones Industrial Average was up just 0.01%, the S&P 500 dropped 0.19% and the Nasdaq Composite dipped 0.42%.

The MSCI world equity index, which tracks shares in 45 nations, was last down 0.24%.

Similarly, U.S. yields retreated slightly, as investors considered the possibility the Fed may hold interest rates higher for longer as the U.S. economy continued to show strength.

"August historically has been a weak month for markets and it isn't surprising that after a big rally to start the year, that investors would take a breather. The headlines haven't changed all that much, but the lens with which investors are viewing those headlines has," said Blake Emerson, global investment specialist at JP Morgan Private Bank.

Yields on benchmark 10-year U.S. Treasuries stepped back after flirting with 16-year highs earlier in the week.

Ten-year yields were last at 4.237%, after reaching 4.328% on Thursday. A break above the 4.338% level reached in October would bring yields to their highest since November 2007.

The greenback looked well-positioned for a fifth consecutive week of gains, its longest winning streak in 15 months, as a safe haven compared to China's rocky economy. But on Friday, it also took a step back, with the dollar index, which tracks the currency versus a basket of six competitors, down 0.18%.

Minutes released earlier this week from the Federal Reserve rate-setting July meeting showed most members of the rate-setting committee continued to see significant upside risks to inflation, suggesting more hikes are in the pipeline.

Attention now turns to the Fed and other top central banks' annual gathering in Jackson Hole, Wyoming, next week, with investors set to scrutinise a speech from Fed Chair Jerome Powell on Aug. 25 for fresh clues on what comes next for interest rates.

"We view the event as a good opportunity for Powell to start laying the ground for the next step in the Fed's policy guidance: no longer focused on how many hikes to expect, but rather on rates remaining 'higher for longer,'" said TD Securities analysts in a note.

Markets are already scaling back rate cuts bets next year.

Despite a Friday boost, oil looked poised to snap a seven-week winning streak as China's slowing economic growth clouded the picture for demand.

Brent crude was last up 0.87% at $84.85 a barrel. U.S. crude jumped 1.17% to $81.29 a barrel.

The yen was trading at 145.03 against the dollar, having been hammered this week to a nine-month low of 146.56 per dollar as yield differentials between the U.S. and Japan widened. It is near levels that sparked an intervention by Japanese authorities late last year.