A man wearing a protective mask, amid the coronavirus disease (COVID-19) outbreak, walks past an electronic board displaying Japan's Nikkei index and various countries' stock market index prices outside a brokerage in Tokyo, Japan, February 22, 2022.
A man wearing a protective mask, amid the coronavirus disease (COVID-19) outbreak, walks past an electronic board displaying Japan's Nikkei index and various countries' stock market index prices outside a brokerage in Tokyo, Japan, February 22, 2022. Reuters / KIM KYUNG-HOON

Wall Street stocks fell, while bond yields and the dollar rose on Thursday as investors worried that aggressive U.S. policy tightening could hurt the economy, while the European Central Bank signalled a steady reduction of stimulus.

The benchmark 10-year U.S. Treasury yield jumped, following two days of declines, after a flurry of economic data such as retail sales and jobless claims and as the ECB signalled less aggressive tightening plans than expected.

The U.S. Federal Reserve should reasonably consider raising interest rates by a half percentage point at its next meeting in May, New York Fed President John Williams said on Thursday, in a further sign even more cautious policymakers at the central bank are on board with a bigger rate hike.

This was after the ECB said it plans to cut bond purchases - known as quantitative easing - this quarter, then end them at some point in the third quarter.

While stocks had gained on Wednesday with hopes inflation could be peaking, Thursday's move appeared to suggest there was little conviction behind those hopes, according to Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut.

"When you delve into the results you have a slowing economy, higher interest rates and you still have inflation at higher levels," said Pavlik who worries about the Ukraine war continuing to push up oil prices while policymaker comments suggest that the Fed may have to hike interest rates too quickly.

"Investors are concerned the Federal Reserve is going to be overly aggressive at raising interest rates," he said.

On Wall Street, the Dow Jones Industrial Average rose 30.5 points, or 0.09%, to 34,595.09 while the S&P 500 lost 25.5 points, or 0.57%, to 4,421.09 and the Nasdaq Composite dropped 176.20 points, or 1.29%, to 13,467.39.

The pan-European STOXX 600 index rose 0.67% and MSCI's gauge of stocks across the globe shed 0.35%.

Meanwhile in forex, the euro plunged to a two-year low against the dollar as comments from ECB President Christine Lagarde were viewed as a sign that the bank was in no rush to raise interest rates.

The dollar index rose 0.755%, with the euro down 0.85% to $1.0793. The Japanese yen weakened 0.20% versus the greenback to 125.90 per dollar, while sterling was last trading at $1.3047, down 0.52% on the day.

Benchmark 10-year notes last fell 30/32 in price to yield 2.8025%, up from 2.689% late on Wednesday.

Elsewhere, New Zealand's central bank raised interest rates by a hefty 50 basis points on Wednesday, the biggest hike in over two decades. The Bank of Canada also raised rates by the same level, making its biggest single move in more than two decades and flagging more hikes to come.

Oil prices slipped amid thin trading volumes ahead of the Easter break, as traders weighed a larger-than-expected build in U.S. oil stocks against tightening global supply. [0/R]

U.S. crude recently fell 1.12% to $103.08 per barrel and Brent was at $107.68, down 1.01% on the day.

Gold fell too after the dollar strengthened and yields rose as investors geared up for U.S. interest rate hikes, but safe-haven demand triggered by the Ukraine crisis and mounting inflation kept bullion on track to post a weekly gain.

Spot gold was last down 0.6% at $1,965.81 an ounce.