U.S. stocks closed little changed and the dollar lost ground to the euro in thin trade on Monday, buffeted by China's Christmas Day interest rate hike and a blizzard that pounded the northeastern United States.
The quarter-point rate increase by the People's Bank of China was the second in just over two months, and while the timing just before year-end may have been a surprise, the move itself was not. China's leaders have pledged to make fighting inflation a top priority in 2011, indicating more rate rises to come.
Oil prices dipped after briefly hitting a 26-month peak as the Chinese rate hike raised fears of slowing demand. Gold prices ended down marginally.
European stock markets fell on China's move, although with the UK on holiday until Wednesday, trading activity was limited.
Despite the modest losses in some markets, many global share price indexes hover near two-year highs.
The market is pretty much flat but we ended well off our lows and although we have no buyers stepping in, we have to give the bulls the victory seeing how the market turned around, said Ryan Detrick, technical analyst at Schaeffer's Investment Research at Cincinnati, Ohio.
The week between Christmas and New Year's is typically considered the Santa Claus rally time, Detrick said, adding that he expects gains on Wall Street to resume later in the week.
On Wall Street, the Dow Jones industrial average fell 18.46 points, or 0.16 percent, to 11,555.03. The Standard & Poor's 500 Index gained 0.77 points, or 0.06 percent, to 1,257.54. The Nasdaq Composite Index rose 1.67 points, or 0.06 percent, to 2,667.27.
Financial stocks rose, in part boosted by a rally in American International Group shares after it secured $4.3 billion in bank credit lines, taking another step toward winding down its U.S. government support. AIG shares gained 9.3 percent, or $5.05, to $59.38, after earlier hitting a two-year high.
In Europe, the FTSEurofirst 300 ended 0.87 percent lower at 1,137.49.
The STOXX Europe 600 Automobiles & Parts index was the worst-hit sector, down 3.9 percent on concern China's rate hike could dent demand for cars from Chinese consumer. Last Friday's news that Beijing aims to tackle congestion in China's capital by limiting new-car registrations also weighed on auto shares.
The pan-European index has gained 6.6 percent in December and, in spite of the Monday's hefty fall, is still on track to record its biggest monthly gain since March.
China's central bank on Saturday announced a hike in the benchmark lending rate by 25 basis points to 5.81 percent and an increase in the benchmark deposit rate by 25 basis points to 2.75 percent.
On Monday the PBOC took aim at inflation once again by saying prudent monetary policy would be helpful in combating price pressures and asset bubbles.
Japan's Nikkei rose 0.75 percent, extending its recent outperformance in Asia. The MSCI All Country World index dipped 0.12 percent.
Early indications pointed to a positive opening for stocks in Tokyo on Tuesday. The March Nikkei futures contract traded in Chicago was up 35 points at 10,355.
Normally thin post-holiday trading was made more so by the severe weather in the U.S. northeast, hampering commuter travel.
The euro rose after shaking off losses below its 200-day moving average, a move that is usually indicative of more losses. While fears that a euro-zone debt crisis could spread have pushed the euro below the 200-day moving average -- $1.3087, according to Reuters data -- in five of the last six sessions, it has rebounded swiftly each time. It was last up 0.36 percent at $1.3162.
With no economic news, we're focusing on these technical factors, and that push above the 200-day average has been a catalyst for the euro, said Omer Esiner, strategist at Commonwealth Foreign Exchange in Washington. And with London off and the blizzard in New York, things are very subdued.
Against the yen, the dollar fell 0.08 at 82.79 yen. Earlier, it had fallen to a three-week low in Asian trading hours.
The benchmark 10-year U.S. Treasury note rallied 15/32 of a point in price, pushing the yield down to 3.33 percent after a strong auction for $35 billion in two-year paper..
Despite a relatively low-volume day, it performed very well, said Jim Golden, head of Treasury trading at Jefferies & Co in New York.
In commodities markets, oil prices pulled back from a 26-month high in response to China's action, which countered the influence of severe cold weather in the United States and Europe.
U.S. crude for February fell 51 cents to settle at $91 a barrel, after hitting an intraday peak of $91.88 -- the highest since October 2008.
Spot gold prices dropped 95 cents, or 0.07 percent, to $1,383.13 an ounce. Bargain hunters stepped in to buy after the initial jolt from China's rate decision.
Grain prices were generally stronger with corn at a 29-month high and soy at a near 28-month high due to hot and dry weather in Argentina, the No. 3 oilseed exporter.
Chicago Board of Trade soybeans for January delivery closed up 23-1/2 cents at $13.73, after posting a session high and new contract high of $13.78-1/4, the highest point for a spot month contract since September 2008.
There is nothing like a supply-driven crop scare to trump other factors, Rich Feltes, vice president of research at brokerage R.J. O'Brien & Associates, said about Argentina.
(Additional reporting by Steven C. Johnson, Angela Moon, Mike Peacock, Carey Gillam, and Joe Rauch; Editing by Leslie Adler)