NEW YORK Global equity markets retreated on Friday, but were off earlier lows as oil prices weakened, while short-dated U.S. bond prices rose after economic data raised the possibility of an interest rate hike by the Federal Reserve this year.
Brent futures slumped 3.7 percent to $33.01 a barrel while U.S. crude was down 3.4 percent at $29.74.
Advances earlier in the week were sparked by moves by oil producers, including Saudi Arabia and Russia, to cap output were erased after a record buildup in U.S. crude stockpiles kindled worries over persisting global oversupply.
Brent is now down 1.1 percent for the week, while WTI crude is up 0.9 percent.
The weakness in oil prices bled over into U.S. stocks, with the S&P energy index down 1.3 percent as the worst performer of the 10 major S&P indexes.
"Seeing a little bit of a pause from the extremes that we've been put through over the past several weeks," said Eric Wiegand, senior portfolio manager at the Private Client Reserve at U.S. Bank in New York.
"Now I think it's back to 'We're largely past earnings season, we have some political events to be mindful of and the central banks continue to be at the fore,'" he said.
The Dow Jones industrial average fell 43.93 points, or 0.27 percent, to 16,369.5, the S&P 500 lost 1.71 points, or 0.09 percent, to 1,916.12 and the Nasdaq Composite added 17.24 points, or 0.38 percent, to 4,504.78.
The S&P 500 has gained 2.7 percent for the week, and was on pace for its best weekly performance this year.
The pan-European FTSEurofirst 300 index of leading shares lost 0.7 percent, weighed by weakness in oil, bank and auto shares, but was still up nearly 4 percent for the week.
Underlying U.S. inflation in January picked up by the most in nearly 4-1/2 years, according to data on Friday, in a sign of a pick-up in price pressures that could allow the Fed to gradually raise interest rates this year.
Cleveland Fed President Loretta Mester said on Friday rates will likely need to remain accommodative for some time, while other officials maintain that weak inflation and global turbulence are enough reasons to pause on further hikes.
Prices on benchmark 10-year Treasuries pulled back as equity losses lessened, last up 2/32 in price to yield 1.7587 percent, while yields on shorter-dated U.S. Treasury debt rose after the CPI data, with two-year Treasury notes down 2/32 in price to yield 0.7459 percent.
The yen rose 0.72 percent against the dollar to $112.68, and the greenback dipped 0.36 percent against a basket of major currencies.
MSCI's index of world shares was 0.3 percent lower, but was up 3.6 percent for the week, putting it on pace for its best week since October.
The weekly jump came after gains in oil eased some of the deflation concerns in the developed world earlier in the week.
The global oil market is oversupplied by around 1.8 million barrels per day (bpd), but that glut could be halved if a deal to freeze oil production at last month's levels takes effect, a top Russian energy official said on Friday.
(Additional reporting by Abhiram Nandakumar; Editing by Bernadette Baum)
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Updated Date: Feb 20, 2016 00:45 AM