THE FED: Testimony by Fed Chairman Jerome Powell before Congress was highly anticipated, and he gave encouraging words about the economic data that have arrived in recent weeks. But some investors speculated they could mean the central bank will get more aggressive in raising interest rates than the market has prepared for.
With a nod to the new tax-cutting law, Powell noted that "fiscal policy is becoming more stimulative" and he predicted inflation would rise this year and stabilize around the Fed's 2 percent target.
The dollar and the yen traded 0.06 percent higher at 106.74. It had been down earlier in the morning.
Any comments from the Fed chairman about inflation are sure to create heightened interest among observers, since the Federal Reserve makes a point of adjusting interest rates according to the inflation rate, either to stimulate economic growth through lower interest rates or to hold down prices through higher rates. USA stock indexes fell sharply, with the S&P 500 index down more than 1.5 percent in what would be a third consecutive day of losses. It had been bouncing between modest gains and losses, but the losses accelerated after Powell began answering questions on Capitol Hill.
Hong Kong's Hang Seng shed 1.8 percent to 30,489.57 and the Shanghai Composite in mainland China fell 0.4 percent to 3,260.33.
Powell reaffirmed to the House Financial Services Committee that the central bank plans to raise interest rates gradually as the economy improves. In addition, the labor force participation rate remained roughly unchanged, on net, as it has for the past several years - that is a sign of job market strength, given that retiring baby boomers are putting downward pressure on the participation rate.
Canada's main stock index fell to a more than two-week low on Thursday, partly on fears about the impact of more protectionist trade policies.
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Traders in short-term interest rate futures were shading to the hawkish interpretation on Wednesday, betting squarely on rises in borrowing costs at the Fed's policy meetings in March, June, and September, and putting a high likelihood of a fourth increase sometime in 2018. The last time the index was lower was in July 2016. South Korea's Kospi lost 0.8 percent to 2,435.57.
Crude oil fell more than 1.0 percent, hitting two-week lows on pressure from a strong USA dollar and worries that surging US crude output might thwart efforts by the Organization of the Petroleum Exporting Countries to drain global supply.
The S&P 500 posted two new 52-week highs and 25 new lows; the Nasdaq Composite recorded 43 new highs and 100 new lows.
Shares of Walt Disney also fell because the Comcast bid could disrupt its takeover offer for 21st Century Fox.
On the day, General Motors Co (GM.N) shares lost 4 percent, while Ford Motor Co (F.N) was down 3.0 percent.
In Europe, stock indexes were mixed with France's CAC 40 close to flat and Germany's DAX down 0.3 percent.
The AUD/USD pair slid 0.43 percent to 0.7728.
The Mexican peso lost 0.06 percent at 18.84 against the greenback, but the Canadian dollar rose 0.07 percent at 1.28 per USA dollar.