Global markets subdued ahead of Yellen speech, healthcare stocks dip

August 24, 2016 8:25 PM EDT

A man is reflected on a stock quotation board outside a brokerage in Tokyo, Japan July 11, 2016. REUTERS/Issei Kato/File Photo

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By Hilary Russ

NEW YORK (Reuters) - Most investors refrained from making big bets on Thursday ahead of the start of a central bankers' meeting in the mountains of Wyoming that could clarify the path of U.S. interest rate policy.

Federal Reserve Chair Janet Yellen will deliver the keynote speech on Friday, but she may struggle to convince financial markets she can steer a divided U.S. central bank to raise interest rates at least once in 2016 after it started the year with four hikes on its radar.

Policymakers expect three rate increases in 2017, in addition to two hikes this year. Financial markets, however, show investors see only one rate increase from now through the end of 2017.

"We still have got this disconnect between markets and the Fed," St. Louis Federal Reserve President James Bullard told reporters last week.

The waiting game left many markets sluggish all week. The U.S. dollar, sensitive to any signal on whether rates will rise this year, inched lower on Thursday to $94.765 against a basket of major currencies <.DXY>.

"Clearly, the Fed is in the driver's seat. They have the stage to command investor attention in Jackson Hole," said Peter Kenny, senior market strategist at Global Markets Advisory Group, in New York.

"The division among the voting members of the FOMC is very, very clear and there is nothing we have seen in recent data that would tilt the argument to the one side of raising or the other side of remaining unchanged in September."

U.S. stocks and Treasury prices tipped to the negative, following Asia and Europe downward. A drop in healthcare and consumer names pulled Wall Street modestly lower, while financials advanced slightly after two more Fed officials pushed the case for a rate hike.

The Dow Jones industrial average <.DJI> fell 33.07 points, or 0.18 percent, to 18,448.41, the S&P 500 <.SPX> lost 2.97 points, or 0.14 percent, to 2,172.47 and the Nasdaq Composite <.IXIC> dropped 5.49 points, or 0.11 percent, to 5,212.20.

The healthcare sector closed 0.79 percent lower after short-selling firm Muddy Waters said it bet that shares of St. Jude Medical Inc. (NYSE: STJ) would fall because of cyber security vulnerabilities in its cardiac devices.

Shares of the pacemaker manufacturer <.SPXHC> lost as much as 10 percent but closed 4.96 percent lower.

Slumping healthcare stocks also dampened European markets after White House candidate Hillary Clinton demanded price cuts on a successful drug.

On the FTSE 100, Hikma , Shire (NYSE: SHP) and AstraZeneca (NYSE: AZN) fell between 1.4 percent to 3.5 percent. London's FTSE <.FTSE> closed 0.28 percent lower.

The losses followed Democratic nominee Clinton's call for a lower price for Mylan NV's (NASDAQ: MYL) allergy drug EpiPen, which has become four times more expensive in the past decade.

"(This) serves to strike fear into the hearts of healthcare groups and their investors everywhere," Mike van Dulken, head of research at Accendo Markets, said in a note. After initially rising, Mylan shares fell 0.7 percent.

Oil prices rebounded on expectations that the dollar would weaken ahead of Yellen's speech. But they pared some gains after a Reuters interview with the Saudi energy minister that cast doubts about an OPEC output freeze.

Brent crude was up 60 cents, or 1.20 percent, at $49.64 a barrel. U.S. crude settled at $47.33, up 56 cents, or 1.20 percent.

The euro rose 0.15 percent against the dollar to $1.1283 . The euro rose despite a weak German IFO survey showing German business morale deteriorated sharply in August as Brexit shock weighed on sentiment.

"Business confidence in Germany has clearly worsened," Ifo head Clemens Fuest said in a statement. "The German economy has fallen into a summer slump."

U.S. Treasury yields wafted upward, with the yield on 30-year bonds last at 2.268 percent. Data showed new orders for U.S. manufactured capital goods increased in July for the second straight month.

Yields on 7-year Treasuries rose 1 basis point to 1.4138 percent after auction .

(Additional reporting by Jason Lange and Lindsay Dunsmuir in Washington, Gertrude Chavez-Dreyfuss, Barani Krishnan, Karen Brettell, Chuck Mikolajczak and Dan Burns in New York, Jim Finkle in Toronto; Editing by Nick Zieminski and Dan Grebler)

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