Wall Street has worst day in months amid Trump worries

Wall Street has worst day in months amid Trump worries

Wall Street has worst day in months amid Trump worries

US stocks and the dollar sold off and bond prices rallied on Wednesday as investors fled risky assets amid uncertainty about Trump's ability to deliver on tax and regulatory reform.

The dollar's decline followed an ugly trading session in the USA on Tuesday. The euro edged up 0.2 percent to $1.0994 after gaining 0.4 percent on Monday.

That was followed late Tuesday by claims from recently-fired Federal Bureau of Investigation boss James Comey that Trump pressed him to drop a probe into ex-national security adviser Michael Flynn over his links to Moscow. Both cast doubt on how effective his administration could be now and spurred investors to rein in the expectations for higher inflation and a stronger dollar with which they greeted the new administration past year. [O/R] US crude CLc1 was effectively flat at $49.04 a barrel.Gold hovered near a two-week high thanks to the weaker dollar and the risk aversion gripping the broader markets.

Sterling regained the $1.2900 handle against the dollar. Losses for the loonie came even as prices of oil, one of Canada's major exports, climbed. U.S. stocks are also nervy, particularly bank shares which were seen as beneficiaries of less regulation. A more uncertain trade outlook with the United States and troubles at an alternative mortgage lender had helped pressure the Canadian dollar to a 14-month low at C$1.3793 earlier this month.

The dollar index, which measures the greenback against six major peers, was down 0.61 percent at 97.506 in late trading. The currency, which has gained 0.6 percent this week, traded in a range of C$1.3580 to C$1.3638.

The dollar surged late a year ago on the assumption that Trump would boost USA growth and inflation with a combination of tax cuts and spending while also encouraging repatriation of foreign-held corporate capital to the United States. News emerged on Tuesday that Trump had asked his now-dismissed FBI chief James Comey to end the agency's investigation into ties between former White House national security adviser Michael Flynn and Russian Federation.

"The more Trump gets bogged down in the impeachment debate and the issues surrounding that, it reduces the likelihood that you get anything meaningful in terms of fiscal stimulus - that's the key factor here", said Chris Scicluna, head of economic research at Daiwa Capital Markets in London.

US manufacturing production recorded its biggest increase in more than three years in April but housing starts posted a surprise fall to five-month lows. South Korea's Kospi also extends its losses from geopolitical tremors from North Korea's nuclear exercise; it manages to shed 0.15% at 2291.53, or 3.52 points.

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The developments could distract Trump from pursuing his proposed policies such as tax cuts and simpler bank regulations, which have underpinned a record-setting rally on Wall Street.

The Dow Jones Industrial Average .DJI was down 333.24 points, or 1.59 percent, to 20,646.51, the S&P 500 .SPX had lost 38.76 points, or 1.61 percent, to 2,361.91 and the Nasdaq Composite .IXIC had dropped 141.99 points, or 2.30 percent, to 6,027.88.

Benchmark 10-year notes US10YT=RR were up 1 point in price to yield 2.21 percent.

The yield curve between two-year notes and 10-year notes flattened to the lowest level since November 3 as investors reached for longer duration bonds.

In commodities, oil prices dipped after settling at a two-week high overnight.

U.S. Treasury yields fell after the housing data added to recent soft economic news that has raised new doubts over how many times the Federal Reserve will raise interest rates this year.

Spot gold was at $1,260 an ounce having hit $1,263.02, its highest since May 1, in the previous session.

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