* Wall Street slides on McDonald's warning, rate fears
* Oil eases on stronger dollar, soft equities market
* Ireland downgrade hits euro as dollar extends rally
* Fears of rate hikes in 2010 weigh on bonds' short end
(Updates with U.S. markets activity; dateline previously
LONDON)
By Herbert Lash
NEW YORK, June 8 (Reuters) - The price of shorter-term U.S.
government securities fell on Monday, on fears that the Federal
Reserve could hike interest rates in 2010, a view that also
helped the U.S. dollar extend gains.
The selling followed a steep sell-off on Friday after the
U.S. Labor Department said employers cut far fewer jobs in May
than had been forecast, surprising analysts who speculated a
recession might end this year and later spark higher rates.
Eurodollar futures on Monday priced in almost a 1
percentage point rise in U.S. interest rates within a year
after Friday's payrolls report.
Oil see-sawed around $68 a barrel on Monday on the stronger
dollar and weakness in U.S. and European equity markets.
Longer-dated U.S. and euro zone government bonds rose as
the weakness in stocks boosted the allure of lower-risk
fixed-income assets, driving the benchmark bund yield off a
seven-month peak.
"If the U.S. economy turns and the ECB is getting more
cautious the market will start to think about rate hikes, so
you get significant pressure on the short end," said Peter
Mueller, interest rate strategist at Commerzbank in Frankfurt.
The euro fell broadly after ratings agency Standard &
Poor's cut Ireland's sovereign credit rating to AA, the
country's second downgrade by an agency in three months.
The downgrade provided a fresh catalyst to sell the euro,
which fell to a nearly two-week low of $1.3806 and bolstered
the dollar.
Worries that the ongoing rise in interest rates may hamper
a recovery hurt stocks, although a rally in commodities prices
helped limit losses of European mining and energy shares.
U.S. stocks slid after fast-food chain McDonald's Corp
<MCD.N> warned second-quarter results may take a hit from
currency swings.
With the stock rally now poised to start a fourth month,
investors are searching for more concrete evidence of an
improving U.S. economy to sustain the advance.
"Clearly the recovery that the market is pricing in is not
here yet," said Peter Kenny, managing director at Knight Equity
Markets in Jersey City, New Jersey.
A recovery "will have to materialize, otherwise the market
is not going to be able to hold on to its gains," Kenny said.
Shortly after 1 p.m., the Dow Jones industrial average
<> was down 105.65 points, or 1.21 percent, at 8,657.48.
The Standard & Poor's 500 Index <.SPX> was down 10.77 points,
or 1.15 percent, at 929.32. The Nasdaq Composite Index <>
was down 25.26 points, or 1.37 percent, at 1,824.16.
The pan-European FTSEurofirst 300 <> index fell 0.8
percent to close at 865.11 points.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was
down 5/32 in price to yield 3.86 after earlier trading higher.
The 2-year U.S. Treasury note <US2YT=RR> also was down 5/32 in
price to yield 1.3778 percent.
The dollar was up against a basket of major currencies,
with the U.S. Dollar Index <.DXY> up 0.25 percent at 80.866
from a previous session close of 80.668.
The euro <EUR=> fell 0.47 percent at $1.3907. Against the
yen, the dollar <JPY=> was down 0.31 percent at 98.33.
U.S. light sweet crude oil <CLc1> rose 26 cents to $68.70
barrel.
Spot gold prices <XAU=> fell $5.45 to $949.85 an ounce.
Japan's Nikkei share average <> rose 1 percent to
fresh eight-month highs, helped by a report on Friday that
showed fewer than expected U.S. job losses in May. MSCI's index
of Asia Pacific stocks outside Japan <.MIAPJ0000PUS> fell 0.65
percent.
(Reporting by Tenzin Pema, Steven C. Johnson and Ellen
Freilich in New York; Christopher Johnson, Ian Chua, Brian
Gorman in London; and Vidya Ranganathan in Singapore; Writing
by Herbert Lash; Editing by Leslie Adler)
