NEW YORK (Reuters) - U.S. and European shares, the dollar and bond yields all headed lower on Thursday, with traders using the quiet holiday period to book some profits on the heady gains stocks have seen in the final quarter of 2016 and reposition for the year ahead.
U.S. benchmark indexes were fractionally lower at the close in the aftermath of the S&P 500's biggest drop in more than two months a day earlier.
As in Europe, financial stocks, which have seen a tremendous run since the U.S. presidential election on the back of higher interest rates, were exerting the greatest downward pressure as bond yields retreated further from their recent highs. U.S. and European bank stocks both were down by more than 1.0 percent.
"We ran out of steam after the election rally. Now the market is at fair value and now it is: 'What is going to come next?'" said Scott Wren, senior global equity strategist at Wells Fargo Investment Institute in St. Louis.
The stall on Wall Street put yet more distance between the blue chip Dow Jones Industrial Average and the much-vaunted 20,000 mark. The Dow has gained more than 8.0 percent since Donald Trump's victory in the Nov. 8 U.S. presidential election and has come to within 20 points of the milestone repeatedly without successfully crossing the line.
The Dow Jones Industrial Average .DJI fell 13.9 points, or 0.07 percent, to 19,819.78, the S&P 500 .SPX lost 0.66 points, or 0.03 percent, to 2,249.26 and the Nasdaq Composite .IXIC dropped 6.47 points, or 0.12 percent, to 5,432.09.
The Dow has yet to breach the 20,000 mark after repeatedly coming within 20 points of the milestone.
The S&P 500 financial index .SPSY dropped 0.7 percent, the worst-performing sector, but has still risen about 20 percent in 2016.
Europe's index of the leading 300 shares fell 0.5 percent. The yen's strength, along with a 17-percent slump in Toshiba Corp's shares after news of potential massive writedowns led to a downgrade to its credit ratings, contributed to a 1.3-percent fall for the Nikkei.
U.S. Treasury yields fell across the curve and most hit two-week lows on Thursday as investors bought safe-haven government debt after a strong seven-year note auction on the last full trading day of the year.
Analysts said the strong bid for seven-year paper, which followed a strong five-year note auction on Wednesday, was largely the result of an overzealous selloff that has gripped bond markets since the election of Donald Trump as U.S. president, boosting yields for newly issued Treasuries.
"The auctions were so well bid because the yield is so much higher," said Jennifer Vail, head of fixed-income research for US Bank Wealth Management in Portland, Oregon. "At the end of the day that’s going to drive more dollars into any new issuance."
In addition to the impact of Trump's election victory, which has sent yields on U.S. 10-year Treasury notes from 1.83 percent on Nov. 8 to 2.51 percent at their open Thursday, Vail said year-end buying by investors to rebalance their portfolios has increased appetite for government debt.
The 10-year note was last up 8/32 in price to yield 2.48 percent. Yields earlier fell to 2.46 percent, their lowest level since Dec. 14.
Yields on 30-year Treasury bonds fell to a three-week trough of 3.06 percent after the auction. The long bond retraced that move later and was up 2/32 in price to yield 3.08 percent.
Euro zone bond yields were also falling on concerns about the strength of a rescue plan for Italian banks and normal year-end caution.
Germany's 10-year yields hit their lowest in seven weeks at 0.164 percent before recovering some ground, after their discount to Treasury yields reached its widest on record earlier in the week.
The U.S. dollar hit a 15-day low against the yen on Thursday as traders used the quiet holiday period to take profits on the dollar's recent gains, while a drop in U.S. Treasury yields on waning risk appetite reduced the greenback's appeal.
The dollar was last down 0.5 percent against the yen at 116.65 yen after falling as much as 0.9 percent in early trading to 116.23 yen, its lowest level since Dec. 14. The greenback had gained 11.5 percent against the Japanese currency between the Nov. 8 U.S. election and Wednesday.
Those gains came partly as U.S. Treasury yields surged to multi-month and multi-year peaks on a faster projected pace of Federal Reserve interest rate increases next year and expectations that U.S. President-elect Donald Trump's policies would boost inflation.
"It’s profit-taking," said Douglas Borthwick, managing director at Chapdelaine Foreign Exchange in New York. "The strong dollar that we’ve seen since the start of November seems to be in a toppish environment." He also noted that trading remained thin during the holiday period.
The euro was last up 0.71 percent against the dollar at $1.0481 after touching a one-week high of $1.0493 in afternoon trading, but was still on track to fall 3.5 percent against the dollar this year.
In commodity markets, oil futures dipped on Thursday after a surprise build in U.S. crude oil inventories reversed an advance in prices that had boosted the benchmarks to their highest levels since July last year.
U.S. crude stocks unexpectedly rose for the second straight week, data from the U.S. Energy Information Administration showed, gaining 614,000 barrels last week versus analysts' forecasts of a decline of 2.1 million barrels.
U.S. crude futures settled 29 cents, or 0.5 percent, lower at $53.77 a barrel while Brent crude LCOc1 fell 8 cents, or 0.1 percent, to $56.14 a barrel.oil was mixed after data showed the surprise rise in U.S. crude inventories.
(Reporting by Dan Burns; Additional reporting by Jamie McGeever in London; Editing by Clive McKeef)