NEW YORK, March 1 (Reuters) - A gauge of global equity performance tumbled and the dollar strengthened against the Canadian and Mexican currencies on Thursday after President Donald Trump said the United States would impose tariffs on steel and aluminum imports next week.
The Canadian dollar and Mexican peso hit session lows after Trump vowed to rebuild American steel and aluminum industries at a meeting of U.S. industry officials at the White House.
U.S. steelmakers jumped on the news, with AK Steel Holding up 9.7 percent, U.S. Steel Corp gaining 7.1 percent and Nucor rising 2.85 percent.
The administration has said duties would protect U.S. companies, but critics say they would raise costs for industry and fail to deliver on a Trump campaign pledge to boost domestic jobs.
Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia, called Trump’s proposed tariffs a “bombshell” announcement that might help the steel and aluminum industry but ultimately hurt U.S. stocks.
“It’s helping about a dozen stocks in those industries but has raised the specter of trade wars, and trade wars don’t help the stock market,” Tuz said.
Stocks on Wall Street had mostly traded lower before Trump’s actions, weighed by remarks by Federal Reserve Chair Jerome Powell to the Senate Banking Committee in Congress and New York Fed President William Dudley in Sao Paulo, Brazil.
While Powell tried to temper remarks he made on Tuesday that raised concerns about the potential for four interest rate hikes this year rather than the Fed’s forecast of three, Dudley was a bit more pointed and said four rate hikes would be “gradual.”
“By and large (Powell) painted the picture of an economy that is doing well and even a little bit better than expected, and that’s prompted fears of rising inflation. Four (rate hikes) this year is now the consensus I think,” Tuz said.
Art Hogan, chief market strategist at B. Riley FBR in New York, said tariffs have not worked historically and they cause retaliation.
“This is sort of working your way into a trade war which is a drag on the economy. It is also inflationary so if you are worried about inflation it is going to pump that up,” Hogan said.
MSCI’s gauge of stock performance in 47 countries shed 0.88 percent. The pan-European FTSEurofirst 300 index of leading regional shares lost 1.26 percent to close at 1,468.47.
European markets had already closed by the time Trump’s comments about tariffs was reported.
On Wall Street, the Dow Jones Industrial Average fell 265.07 points, or 1.06 percent, to 24,764.13. The S&P 500 lost 21.52 points, or 0.79 percent, to 2,692.31 and the Nasdaq Composite dropped 59.12 points, or 0.81 percent, to 7,213.89.
The dollar index rose 0.07 percent, with the euro up 0.11 percent to $1.2206. The Japanese yen weakened 0.05 percent versus the greenback at 106.75 per dollar.
The Mexican peso lost 0.29 percent versus the U.S. dollar at 18.89, while the Canadian dollar fell 0.39 percent versus the greenback at 1.29 per dollar.
The gap between short-dated U.S. borrowing costs and those in Germany was at its widest in over 20 years as the monetary policy outlooks by the Fed and European Central Bank for the two regions diverged.
U.S. benchmark 10-year Treasury notes last rose 9/32 in price to push yields lower to 2.8351 percent.
U.S. consumer prices increased in January as a gauge of underlying inflation posting its largest gain in 12 months, but a survey showed the euro zone’s factory boom slowed a little further in February, pressuring euro zone yields lower.
“In the U.S. we have at least three rate hikes this year, but in the euro zone, there was some exaggeration about where inflation was heading so that is now being priced out and yields are moving to the downside,” said DZ Bank strategist Daniel Lenz.
Oil fell more than 1 percent, hitting two-week lows on pressure from a strong dollar and worries that surging U.S. crude output might thwart efforts by the Organization of the Petroleum Exporting Countries to drain global supply.
U.S. crude fell 51 cents to $61.13 per barrel and Brent was last at $63.95, down 78 cents on the day.
(Editing by Bernadette Baum and Chizu Nomiyama)