By Lawrence Delevingne

(Reuters) -Most global stocks dipped, while oil prices fell and Treasury yields climbed, as investors weighed declining factory activity in the euro zone and China with stabilizing U.S. manufacturing and job openings that signaled a still-tight labor market.

On Wall Street, the Dow Jones Industrial Average rose 0.2%, to 35,630.55, while the S&P 500 lost 0.27%, to 4,576.72 and the Nasdaq Composite dropped 0.43%, to 14,283.91.

Shares of Merck & Co. dropped 1.3% even though it raised its full-year profit forecast; Pfizer missed estimates for quarterly revenue, sending shares down 1.2%; and Caterpillar Inc rose 8.8% after reporting a better than expected rise in second-quarter profit, although it also warned on third-quarter sales and margins.

European stocks fell 0.9%, stepping back from a 2% increase in July, the index’s second month of gains.

UK stocks also fell 0.4%, though HSBC climbed 1.3% after announcing a $2 billion share buyback and raising its key profitability target.

Losses accelerated across European markets after data showed manufacturing activity in the bloc contracted in July at the fastest pace since May 2020 amid slumping demand even as factories cut their prices sharply.

FED ANTICIPATION

The data disappointed investors who are readying for an end to a series of U.S. Federal Reserve interest rate hikes, with an increase last week widely seen as one of the last in its current tightening cycle.

Market players put Tuesday’s losses down to a combination of profit taking at the start of the month, as well as nerves over the health of the global economy.

“The economy is a little bit weaker than perhaps people would like, and I think that’s a concern for earnings growth heading into the second half of the year,” said Michael Hewson, chief market analyst at CMC Markets.

U.S. Treasury yields rose on Tuesday with 30-year paper touching a new year-high as investors expected an increase in government debt issuance and anticipated more signs of economic resilience, despite data showing a slowdown in activity.

The yield on 10-year Treasury notes was up 7.2 basis points at 4.029%. The two-year yield, which typically moves in step with interest rate expectations, was up 2.5 basis points at 4.900%.

Ronald Temple, Chief Market Strategist at Lazard, said in an email that the new U.S. jobs data “might be yet another signal that the Fed is successfully avoiding recession while reducing inflation.”

COMMODITIES DIP

Oil prices edged lower on a stronger dollar and signs of profit-taking, after a rally in July when investors bet on tighter global supplies and demand growth in the second half of 2023.

U.S. crude fell 0.29% to $81.56 per barrel and Brent was at $85.12, down 0.36% on the day.

Energy giant BP fell 0.26% and boosted its dividend by 10% after reporting a second-quarter profit of $2.6 billion, down 70% from a year earlier.

Gold prices fell around 1% on Tuesday, weighed down by a stronger dollar and an uptick in bond yields, while investors looked forward to more U.S. economic data this week that could influence the Federal Reserve’s policy stance.

DOLLAR VS YEN

The U.S. dollar index, which measures the currency against six major peers, rose 0.35%. The greenback also hit a three-week high against the yen as investors continued to seek clarity on the Bank of Japan’s recent adjustment to its yield curve control and what that might mean for monetary policy.

China’s stumbling post-pandemic recovery remained in focus, for instance, after a surprise contraction in manufacturing in a private-sector survey released Tuesday.

MSCI’s broadest index of Asia-Pacific shares traded down about 0.4%, slightly below the high reached Monday, which was its strongest since April last year.

(Reporting by Lawrence Delevingne in Boston, Tom Wilson in London and Kevin Buckland in Tokyo; Editing by Angus MacSwan, Susan Fenton and Deepa Babington)

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