By Karen Brettell
NEW YORK, Aug 17 (Reuters) - U.S. stocks ended down on Monday and the dollar hit a two-month low against the euro as soft U.S. economic data, including an unexpected drop in retail sales, prompted markets to scale back bets on an imminent Federal Reserve interest rate move.
Thirty-year Treasury yields, meanwhile, climbed to their highest level since 2007, as concerns over the U.S. fiscal trajectory combined with heavy AI-related corporate debt issuance to push yields up.
Stocks were
dented as investors waited for quarterly reports from large retailers to give information about the health of the U.S. consumer including home improvement company Home Depot, due out on Tuesday, and retail bellwether Walmart, due out on Thursday.
"Concerns about recent softer data have the market being a bit tepid and waiting for retail earnings for direction," said Phil Blancato, chief market strategist at Osaic Wealth.
Blancato added that volume is often weak in August, when many traders take vacations.
"There's a combination of summer doldrums and waiting for data on the consumer," Blancato said.
The Dow Jones Industrial Average fell 0.51%, the S&P 500 dropped 0.52% and the Nasdaq Composite was down 0.31%.
MSCI's gauge of stocks across the globe fell 0.35%, while the pan-European STOXX 600 Index dropped 0.22%.
Uncertainty over the economic impact of the Iran war, which began in February, also weighed on stocks.
"(Investors) were telling themselves wars always come to an end. I don't think anyone was pricing in the fact that this could still be going as we approach the end of the summer," said David Morrison, senior market analyst at Trade Nation.
Oil prices settled up by more than $2 on Monday on global supply worries stoked by investor pessimism about diplomatic efforts to resolve the war, with U.S. President Donald Trump demanding Iran's surrender and threatening to bomb Oman.
U.S. crude was last up 2.74% at $84.66 a barrel and Brent rose to $90.81 per barrel, up 2.59% on the day.
The dollar slipped as traders pushed back their expectations for the Fed's next move. Benign consumer and producer price inflation data for July, released last week, boosted hopes that the worst of the price pressures may have passed — even as uncertainty over the war lingers.
An unexpected drop in retail sales last month added to concerns that the U.S. economy may not be as resilient as previously thought.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, was down 0.06% at 99.6. The euro gained 0.09% to $1.1579 and reached $1.1614, the highest since June 17.
Markets are now pricing in a 35% chance of a Fed move next month, down from about 55% a week earlier, while the odds of a move by December stand at 69%.
Treasury yields, meanwhile, gained after the U.S. government also had to pay the highest rates for a sale of 30-year bonds at an auction last week since 2001.
The yield on benchmark U.S. 10-year notes rose 2.79 basis points to 4.724%. The 30-year bond yield gained 4.43 basis points to 5.3103%, the highest since 2007.
"Three soft economic releases should have pushed long-end yields lower. Instead, 30y bonds were auctioned at the highest yield since 2001, and yields are now even higher. A worsening fiscal outlook, AI-driven corporate duration supply, and a more price-sensitive buyer base help explain why," Barclays Capital analyst Anshul Pradhan wrote on Monday in a note.
In precious metals, spot gold rose 1.02% to $4,420.41 an ounce.
(Reporting by Karen Brettell, Sinéad Carew, Avinash P, Purvi Agarwa, Lawrence White and Stella Qiu, Editing by Jacqueline Wong, Gareth Jones, Chizu Nomiyama, Will Dunham and Sanjeev Miglani)
