* Wall Street rally fades after Europe, China end higher
* Dollar index down slightly, U.S.
* U.S. yield curve flattens after data shows inflation
pressure
* GRAPHIC-World FX rates in 2019: http://tmsnrt.rs/2egbfVh
(Updates prices to late afternoon, adds commentary)
By Sinéad Carew
NEW YORK, June 11 (Reuters) - Wall Street's indexes lost
some ground on Tuesday afternoon and U.S. Treasury yields dipped
as worries about the U.S.-China trade war flared up and euphoria
following Friday's U.S.-Mexico deal faded.
U.S. 3-year Treasury yields dipped on strong demand at an
auction of $38 billion worth of new notes and benchmark 10-year
note yields were virtually unchanged from the previous session.
A U.S.-Mexico trade and immigration agreement announced
Friday had prompted a Monday rally that carried over to Tuesday
morning in part because it prompted investor hopes that U.S.
President Donald Trump might reach a deal with China.
But on Tuesday afternoon Trump said he was holding up a
trade deal with China and had no interest in moving ahead unless
Beijing agrees again to four or five "major points" that he did
not specify. Trump is expected to meet with China's President Xi
Jinping at a Group of 20 summit later this month. "The unresolved trade dispute with China is still a ceiling
on the stock market," said Greg McBride, senior vice president
and chief financial analyst at Bankrate in Palm Beach, Florida.
"Don't expect the S&P 500 to get back to the record high
until the trade agreement is signed or close to being signed."
The Dow Jones Industrial Average .DJI fell 51.18 points,
or 0.2%, to 26,011.5, the S&P 500 .SPX lost 5.54 points, or
0.19%, to 2,881.19 and the Nasdaq Composite .IXIC dropped
13.84 points, or 0.18%, to 7,809.33.
The pan-European STOXX 600 index .STOXX rose 0.69% and
MSCI's gauge of stocks across the globe .MIWD00000PUS gained
0.23%. Europe had risen due to a surge in Frankfurt's DAX after
German and Swiss market holiday Monday.
Emerging market stocks rose 1.00%. MSCI's broadest index of
Asia-Pacific shares outside Japan .MIAPJ0000PUS closed 1.05%
higher, while Japan's Nikkei .N225 rose 0.33%. The Shanghai
composite index .SSEC had closed up 2.6%.
FLATTER YIELD CURVE
In U.S. Treasuries a drop in two-year Treasury prices
flattened the yield curve after Labor Department data showed
rising producer prices in May for the second consecutive month,
pointing to a steady pick-up in inflation pressure. An increase
in prices could temper bets for rate cuts as the Fed uses rate
hikes to contain inflation. The three-year note yield US3YT=RR dipped immediately
following the auction as prices rose, retracing its rise earlier
on Tuesday. It was last up 0.8 basis point at 1.879%.
Benchmark 10-year notes US10YT=RR last fell 1/32 in price
to yield 2.1448%, from 2.141% late on Monday.
Gold prices dipped as investors booked profits following
robust gains over the past weeks, and demand for safe-haven bets
waned due to hopes for a U.S.-China trade deal.
Spot gold XAU= dropped 0.1% to $1,326.50 an ounce.
In currency markets, the U.S. dollar index was flat as
investors focused on the U.S.-China trade war and economic data
for signals of growth and whether the Fed is likely to cut rates
in the coming months. The dollar index .DXY fell 0.08%, with the euro EUR= up
0.15% to $1.1329.
In commodities trading, oil futures barely changed as
concerns a global economic slowdown could dent crude demand
weighed against expectations that OPEC and its allies would
extend supply curbs.
U.S. crude settled up 1 cent at $53.27 while Brent was
unchanged at $62.29.
Earlier, China's stocks had risen on Beijing easing
financing rules to boost local government spending on public
works and expectations of lower central bank rates globally.