The euro surged on Thursday, taking on renewed vigor after better-than-forecast debt auctions by Spain and Italy and a hawkish rate view from the ECB but weak U.S. jobless claims data weighed on U.S. stocks.
Wall Street struggled from the start of the day, trading in tight ranges before closing lower. Stocks in Tokyo are poised to open weaker after closing at an eight-month high on Wednesday. The Nikkei March futures contract traded in Chicago was down 30 points at 10,590.
The euro got an extra boost after European Central Bank President Jean-Claude Trichet said the euro-zone economy faces short-term inflationary pressures. The ECB had earlier left interest rates unchanged at 1 percent.
He sent a mild warning to markets that the ECB's assessment on interest rates could change, said Commerzbank economist Michael Schubert.
Oil prices see-sawed but ultimately closed lower on the day, undermined by the jobless claims report and the prospect OPEC would raise output should prices break above $100 a barrel for an extended period.
Grain prices in Chicago traded touched their highest levels in 2-1/2 years on food price inflation and supply concerns.
Gold prices fell after being unable to benefit from a weaker U.S. dollar.
European shares closed lower, although Spanish banks provided a pocket of strength following the solid sovereign bond auctions in Spain and Italy on Thursday. These followed a relatively easy sale of Portuguese debt on Wednesday.
Trichet and the auctions helped the euro score its best day vs. the greenback in six months, rising 1.69 percent to $1.3357.
We can make another run probably to just above $1.34, after which I would look to fade the move, said Paresh Upadhyaya, head of Americas G10 FX Strategy at BofA Merrill Lynch Global Research in New York.
From a longer-term perspective, the factors that are at play are euro negative. Funding concerns will continue to weigh on the euro in the first quarter.
Against the Swiss franc, the euro reached a new 1-month high to trade at 1.2876 francs.
The dollar fell 0.17 percent against the Japanese yen to trade at 82.80. Against a basket of currencies, made up of its major trading partners, the U.S. dollar fell 1.07 percent <.DXY>.
U.S. light sweet crude oil fell 46 cents to settle at $91.40 per barrel. Spot gold prices fell $12.15, or 0.88 percent, to $1,373.80 an ounce.
STOCKS SLIP ON JOBLESS CLAIMS
A surprisingly large increase in new weekly claims for U.S. jobless benefits soured the mood in the U.S. stock market while food and energy costs lifted December producer prices.
The claims rose to 445,000 from 410,000 in the prior week, the biggest one-week climb in about six months, which countered expectations for a small drop.
U.S. stocks closed lower. The Dow Jones industrial average <.DJI> fell 23.54 points, or 0.20 percent, to 11,731.90. The Standard & Poor's 500 Index <.SPX> lost 2.20 points, or 0.17 percent, to 1,283.76. The Nasdaq Composite Index <.IXIC> dropped 2.04 points, or 0.07 percent, to 2,735.29.
Shares of drugmaker Merck & Co
The FTSEurofirst 300 <.FTEU3> index of top European shares closed down 0.57 percent at 1,157.34 points after jumping 1.5 percent to a 28-month high in the previous session.
Spain's Banco Santander
European mining shares were among the top decliners as key base metals prices fell. Copper slipped after two days of strong gains on worries about waning demand in top metals consumer China, which is approaching its new year holidays.
The STOXX Europe 600 Basic Materials index <.SXPP> fell 1.84 percent.
MSCI's All-Country World index <.MIWD00000PUS>, hung on to gain 0.46 percent, ending at 336.72, a fresh 28-month high.
In the debt markets, euro-zone interest-rate futures fell while two-year German bond yields rose to their highest levels since December as traders raised bets on a future interest- rate hike after Trichet's hawkish comments on inflation.
The two-year German Schatz yield rose to a 3-1/2-week high of 1.114 percent after Trichet said the bank had not precommitted not to move rates and added that they had hiked rates in July 2008 as the financial crisis got under way.
The U.S. 10-year Treasury note rose 19/32 of a point in price, pushing the yield down to 3.299 percent.
(Additional reporting by Gene Ramos, Rodrigo Campos, Jeremy Gaunt, Nigel Davies, Atul Prakash, Emelia Sithole-Matarise, Ryan Vlastelica, Pedro Nicolaci da Costa and Paul Carrel)