* US stocks drop as services sector fall sparks worries
* Euro rises as ECB comments suggest gradual withdrawal of
support
* US Treasuries fall ahead of new supply
(Recasts, updates with closing prices)
By Al Yoon
NEW YORK, Dec 3 (Reuters) - U.S. stocks fell on Thursday
after an unexpected contraction in the vast U.S. services
sector spurred worries about the economic recovery, while the
euro rose against the dollar after comments suggesting the
European Central Bank would gradually withdraw support
measures.
The decline in activity in the U.S. services sector
reported by the Institute for Supply Management also dragged
down European stocks. But there was little reaction to the data
in the U.S. government bond market, with Treasury prices
falling ahead of looming bond auctions next week.
Activity in the U.S. services sector fell to its lowest
level in July, according to an index by the Institute of Supply
Management.
The U.S. services sector data "doesn't seem to get as much
weight as the manufacturing (data), but seeing it head in this
direction is not a positive sign," said Dan Cook, senior market
analyst at IG Markets in Chicago.
The Dow Jones Industrial Average <> fell 86.53 points,
or 0.83 percent, to 10,366.15. The Standard & Poor's 500 Index
<.SPX> edged down 0.84 percent to 1,099.92 and The Nasdaq
Composite Index <> climbed 0.54 percent to 2,173.14.
U.S. stocks fell on the news, and nervousness rose a day
before the federal government's key monthly payrolls report.
Wall Street sold off more sharply shortly before the close
as a massive equity offering by Bank of America spurred
concerns that other banks could sell new shares and dilute the
equity of existing shareholders.
World equities dropped from a 14-month intraday high on
Thursday, reflecting the skittishness of investors who at year
end want to protect profits earned since March.
Stocks had been rising since Bank of America Corp. on
Wednesday said it was able to repay $45 billion of taxpayer
bailout funds, which suggested strength in the financial
sector.
Shares of Bank of America <BAC.N, the largest U.S. bank by
assets, rose 0.7 percent to $15.76.
European shares fell on Thursday on the U.S. services data
as as miners tracked a retreat in gold prices from record
highs.
The pan-European FTSEurofirst 300 index <> fell 0.15
percent to 1,014.20 points.
Markets were unmoved by a Markit survey showing that the
euro zone's service sector expanded for the third consecutive
month in November; the expansion was at a slower pace than
reported early last week.
The euro rose against the U.S. dollar on Thursday after the
European Central Bank hinted it would slowly start withdrawing
emergency spending, while the yen fell amid fears Japan may
move to weaken its currency.
Though the ECB left interest rates at record lows, its
president, Jean-Claude Trichet, said the next 12-month
refinancing operation for banks would be the last. The bank
also lifted its growth forecast for 2010. []
That sent the euro near a 16-month high around $1.5140 and
pushed it to its highest level against the yen in a week. It
pared gains after Trichet said interest rates remain
appropriate and did not offer a timetable for winding down the
ECB's ultra-loose monetary policy.
Such policies tend to undermine a currency's value because
they increase money supply and risk higher inflation.
At the close in New York, the euro <EUR=> rose 0.17 percent
to $1.5070. Against the Japanese yen, the dollar <JPY=> climbed
0.86 percent to 88.20 yen.
The MSCI world equity index <.MIWD00000PUS> rose as high as
302.83, its highest level since late September 2008. After the
U.S. trading session, it declined by 0.23 percent, to 299.64.
Despite softer U.S. stocks, world equities have erased all
the losses suffered after Dubai announced a standstill last
week on billions of dollars of debt held by its conglomerate
Dubai World, with investors taking risk-friendly outlooks that
the world's central banks would keep interest rates low.
"This is certainly one of the reasons for the positive
market sentiment today," said Joerg Rahn, chief investment
officer at wealth management company Marcard, Stein & Co in
Hamburg.
Japan's Nikkei average soared nearly 4 percent to its
highest close in five weeks as exporters such as Canon Inc
<7751.T> jumped on the weaker yen. Emerging stocks <.MSCIEF>
rose 0.5 percent.
In energy and commodities prices, U.S. light sweet crude
oil <CLc1> fell 75 cents, or 0.98 percent, to $75.85 per
barrel, and spot gold prices <XAU=> fell $4.00, or 0.33
percent, to $1210.50.
U.S. government bond prices fell, sending yields to
one-week highs, ahead of auctions of $74 billion in coupon
supply next week. Treasuries also reacted to a decline in
initial jobless claims, which suggested the economy recovery
was taking hold.
Yields on benchmark 10-year Treasury notes rose 0.07
percentage point to 3.38 percent.
German government bond futures<FGBLc1>, the euro zone
benchmark, fell 0.2 percent.
(Additional reporting by Christoph Steitz in Frankfurt and
Steven C. Johnson and Chuck Mikolajczak in New York; Editing by
Leslie Adler)
((albert.yoon@thomsonreuters.com; +1-646-223-6347; Reuters
Messaging: albert.yoon.reuters.com@reuters.net))
