By Trevor Hunnicutt

NEW YORK (Reuters) - World stock markets failed to hold onto four-month highs on Thursday as a record sell-off in Facebook shares offset optimism that the European Union and the United States would settle their differences on trade.

Facebook Inc, the fifth-largest global stock by market capitalization, collapsed 18.96 percent, the biggest one-day wipeout in U.S. stock market history, after the social media company's earnings report showed slowing usage in the biggest advertising markets.

Chief Executive Mark Zuckerberg's fortune took an almost $16 billion hit as the declines wiped more than $120 billion off the company's value. Executives warned that profits would plummet as the company improves privacy safeguards.

 

That countered optimism over news that U.S. President Donald Trump agreed to refrain from imposing car tariffs while Europe and the United States negotiated to cut other trade barriers.

MSCI's gauge of stocks across the globe shed 0.04 percent after earlier in the day rising to the highest level since March 16.

The Dow Jones Industrial Average rose 112.97 points, or 0.44 percent, to 25,527.07, the S&P 500 lost 8.63 points, or 0.30 percent, to 2,837.44 and the Nasdaq Composite dropped 80.05 points, or 1.01 percent, to 7,852.19. [.N]

The dollar index rose 0.4 percent.

Liz Young, senior investment strategist at BNY Mellon Investment Management, said investors' skepticism of the market is leading them to take a closer look at corporate earnings and other fundamental factors "rather than jumping on the bandwagon and investing in tech stocks.

"People need to be careful right now to be in those trendy trades," she said.

Yet the heat has eased somewhat over U.S. and European trade issues, allowing markets to return their attention to central banks and their plans to withdraw stimulus.

"Game theory tells us that, in a global trade war, nobody likes to be left out from a deal," Bank of America Corp analysts wrote in a note. "The U.S.-EU deal... has reduced the risk of an escalating global trade war."

The euro, which initially received the U.S.-EU trade news warmly, fell sharply after European Central Bank boss Mario Draghi reaffirmed a commitment to keep interest rates on hold "through" next summer, even though he saw inflation picking up by the end of the year.

The euro was down 0.69 percent to $1.1647.

Concerns about Facebook's major earnings miss in an otherwise largely positive U.S. corporate results season did little to support bonds, which lost value as yields resumed their climb higher ahead of an expected strong reading on U.S. gross domestic product data on Friday.

Benchmark 10-year notes hit a six-week high and last yielded 2.982 percent, up from 2.936 percent late on Wednesday.

Progress on trade also helped demand for oil, which is sensitive to economic growth prospects. Crude prices also rose as Saudi Arabia suspended oil shipments through a strait in the Red Sea after an attack by Yemen's Iran-aligned Houthi movement.

U.S. crude settled 0.45 percent higher at $69.61 per barrel and Brent rose 0.83 percent to $74.54.

Trade is by no means removed from a slate of issues facing investors, with Washington still to finalize an agreement with Europe, while it remains in negotiations with China as well as with Canada and Mexico.

China's blue-chip shares lost 1.1 percent. Qualcomm Inc dropped its $44 billion bid for NXP Semiconductors after a deadline for securing Chinese regulatory approval passed.

The breakdown of the deal leaves "investors fearing that the trade war has just turned even more so on China," Citi analysts told clients.

(Reporting by Trevor Hunnicutt; Editing by Nick Zieminski and Dan Grebler)

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