Oil prices snapped a week-long rally on Monday, helping Wall Street recover from a shaky start to end flat, while positive U.S. home sales data soothed investors worried about economic damage from high energy costs.
The dollar rose as some of the investment money in oil flowed into currencies after officials from the Group of 20 countries sounded fears that rising energy prices were hurting global economic growth.
The greenback rebounded from a near three-month low against the euro. It hit a nine-month peak versus the yen before giving back some gains.
U.S. Treasuries climbed on demand for safe-haven government debt. The benchmark 10-year U.S. Treasury note was up 14/32, its yield at 1.9273 percent.
High energy costs have been cited as one factor preventing a runaway rally in equities.
Stocks on Wall Street are up 9 percent year-to-date, as measured by the S&P 500 index <.SPX>, which on Monday closed at its highest since June 2008. But it has been stuck in a tight range of around 1,355-1,370 points despite data pointing to a firmer recovery in the U.S. economy, including the housing and labour markets.
A lot of positives are unfolding in the U.S., but a lot of that has been priced into this rally we've had since the fall. With the earnings season over, we may see a little bit of pullback, said Natalie Trunow, chief investment officer of equities at Calvert Investment Management in Bethesda, Maryland, which has about $13 billion in assets.
The Group of 20 finance ministers and central bankers said on Sunday they were alert to risks of higher oil prices and discussed at length the impact sanctions on Iran will have on crude supplies and global growth.
Now, when people talk about energy, they are talking about the geopolitical. But that morphs into a concern about demand, and the demand conversation kind of undermines confidence, said Peter Kenny, managing director at Knight Capital in Jersey City, New Jersey.
Crude oil prices closed down for the first time in a week, losing a modest 1 percent from last week's 10-month highs above $125 a barrel in London and 9-month peaks near $110 in New York.
The drop was in response to Saudi Arabia's raising of crude exports over the past week and growing speculation that the Obama administration might tap U.S. strategic oil reserves if prices continued rising.
Despite the correction, London's Brent oil remained up 15 percent on the year while U.S. crude showed a 9 percent gain year-to-date as Iran's nuclear crisis and other Middle East-related supply concerns kept prices on a boil.
Oil price in various currencies: http://link.reuters.com/qun66s
ECB in graphics: http://link.reuters.com/neg32s
Euro zone money supply: http://link.reuters.com/zak35s
Stocks recovered from early lows after data showed contracts for U.S. home resales rose to a near two-year high in January, lending more credence to the argument that the industry may be in the beginning stages of a recovery.
At the close, the Dow Jones industrial average <.DJI> was down 1.44 points, or 0.01 percent, at 12,981.51. The Standard & Poor's 500 Index <.SPX> was up 1.85 points, or 0.14 percent, at 1,367.59. The Nasdaq Composite Index <.IXIC> was up 2.41 points, or 0.08 percent, at 2,966.16.
In European equity markets, fear about rising energy costs hit the outlook for the automobile sector. The FTSEurofirst 300 <.FTEU3> index of top European shares closed down 0.3 percent at 1,073.81, below last week's seven-month high.
Global equities suffered from a weaker session in Asia and Europe. The MSCI world equity index <.MIWD00000PUS> slipped 0.2 percent to 331.08. Year-to-date, it was still up over 10 percent.
The U.S. dollar hit a 9-month high above 81.60 yen before retreating to 80.57. For the month, the greenback was still up nearly 6 percent as high oil prices and Japan's 2011 trade deficit weakened the yen.
The euro was down 0.4 percent at $1.33999 versus Friday's 2-1/2 month high of $1.3486.
Some market players saw the single currency mounting a comeback before the European Central Bank's second long-term refinancing operation on Wednesday.
Others say the impact of the ECB's operation may already be largely reflected in the prices of assets like European sovereign bonds and even the euro itself.
It's all pretty well priced in and pretty well expected. We're looking for just under 500 billion euros and about 300 billion euros of net new liquidity, said Kevin Lecocq, chief investment officer for Private Wealth Management at Deutsche Bank. Wednesday won't be big.