Global shares held near their highest level since May on Wednesday on hopes of more central bank stimulus for struggling economies, but uncertainty about the extent and timing of any moves hurt the euro and safe-haven U.S. and German government bonds.
Oil prices in London clung near three-month peaks, partly on worries about supply disruption stemming from Mideast tension, while a focus on some weaker-than-expected U.S. economic data pushed gold back above $1,600 an ounce.
Financial markets have been riding high in recent weeks on hopes that European Central Bank plans expected to be detailed in September can put a floor under Spain and Italy's debt troubles and prevent the euro zone from unraveling.
Traders have also raised bets the U.S. Federal Reserve would embark on a third round of large-scale bond purchases, known as QE3, perhaps as soon as its next policy meeting in September.
While recent weak economic data in Europe and Asia supported the view that more monetary stimulus is needed to avert a global recession, surprisingly strong July figures on U.S. employment and retail sales caused some traders to reconsider that QE3 might not happen until after September.
"While one or two data points alone will not meaningfully alter the outlook for Fed monetary policy, additional upside surprises to U.S. data over the coming weeks would indeed see investors scale back expectations for additional Fed easing," said Omer Esiner, chief analyst at Commonwealth Foreign Exchange in Washington.
Among the latest evidence the U.S. economy is not as weak as previously feared were a 0.6 percent increase in industrial output in July and a rise in a gauge of home builder confidence, which hit its highest in more than five years.
The data, however, was mitigated by a report from the New York Federal Reserve that showed manufacturing in New York state contracted in the first time in 10 months.
Investors took solace for now that a sluggish U.S. economy would not result in severe deterioration in consumer demand and corporate profits, supporting some appetite for equities.
The Standard & Poor's 500 index has lingered around the 1,400 point mark, close to a four-year high.
In midday trading, the Dow Jones industrial average was down 0.26 point, or 0.00 percent, at 13,171.88. The Standard & Poor's 500 Index was up 1.85 points, or 0.13 percent, at 1,405.78. The Nasdaq Composite Index was up 13.46 points, or 0.45 percent, at 3,030.44.
Top European shares were 0.11 percent lower at 1,100.74 points, bringing the global MSCI index down 0.1 percent at 322.69.
Uncertainty over the timing of more central bank stimulus after encouraging data on industrial output and home builder confidence spurred selling in U.S. Treasuries and German Bunds.
Benchmark 10-year Treasury yields rose to 1.8016 percent, the highest level since May 16, according to Reuters data. The 10-year yield broke above its 100-day moving average on Tuesday, a move that portended yields might rise further.
"The lack of bad news means that the path of least resistance is for higher yields," said Ira Jersey, interest rate strategist with Credit Suisse in New York.
German Bund futures fell 1 point to 141.43, the lowest level since July 3.
Higher U.S. bond yields helped boost the dollar against the yen. The greenback was last up 0.24 percent at 78.92 yen after touching 79.04 yen, a one-month high.
In line with the sell-off in stocks and lingering concerns about Europe's economy, the euro was down 0.32 percent at $1.2282.
In commodities trading, tensions in the Middle East and supply concerns pushed up oil prices, with worries that Israel could launch an attack on Iran in the coming months.
U.S. inventories of crude oil measured by the Energy Information Administration dropped 3.7 million barrels, bigger than a forecast drop of 1.7 million, which pointed to tight supply on either side of the Atlantic.
Brent crude futures rose $1.07 to $115.10 a barrel, while U.S. oil futures were up 19 cents at $93.62 a barrel.
Gold rose 0.32 percent at $1,603.10 an ounce after dipping to a near two-week low on Tuesday.
