Oil fizzles on crude build; Wall St. ends lower

August 9, 2016 9:04 PM EDT

Visitors looks at an electronic board showing the Japan's Nikkei average (top R) at the Tokyo Stock Exchange (TSE) in Tokyo, Japan, February 9, 2016. REUTERS/Issei Kato

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By Lewis Krauskopf

NEW YORK (Reuters) - Oil prices fell on Wednesday on a surprise build in U.S. crude inventories, dragging on energy shares, and U.S. stock indexes receded from record highs.

A broad European equity index declined after some disappointing corporate results and the dollar weakened as investors sought direction on the timing of a potential U.S. interest rate hike.

With bond yields low in developed economies as central banks maintain accommodative monetary policies, investors have sought out equities for yield.

After more than a year without setting fresh records, the U.S. benchmark S&P 500 stock index consistently has been reaching new peaks after breaking to an all-time high a month ago.

"The markets were extended, not only price-wise but psychologically (they) have been extended," said Steve Massocca, chief investment officer with Wedbush Equity Management in San Francisco. "It’s only natural to see a pullback here and I think this pullback is something that could continue for a little while.”

The Dow Jones industrial average <.DJI> fell 37.39 points, or 0.2 percent, to 18,495.66, the S&P 500 <.SPX> lost 6.25 points, or 0.29 percent, to 2,175.49 and the Nasdaq Composite <.IXIC> dropped 20.80 points, or 0.4 percent, to 5,204.59.

The energy sector <.SPNY> was the worst-performing of the 10 major S&P groups, falling 1.4 percent.

"Once we saw inventories this morning, that certainly moved energy far lower and dragged almost everything else down," said Tim Dreiling, regional investment director for The Private Client Reserve of U.S. Bank.

MSCI's all-world index <.MIWD00000PUS> was little changed, hovering around a one-year high. MSCI's emerging markets index <.MSCIEF> gained 0.4 percent, up for a fifth straight session and hitting its highest in a year.

The pan-European FTSEurofirst 300 index <.FTEU3> slipped 0.3 percent following five days of gains, after weak reports from German utility E.ON and Danish biotechnology company Novozymes .

Oil prices dropped after the second-biggest weekly draw in U.S. gasoline this summer was countered by an unseasonal build in crude stockpiles.

U.S. crude inventories rose 1.1 million barrels in the week ended Aug. 5, the U.S. Energy Information Administration (EIA) reported, in a third consecutive weekly build that surprised the market.

"At this time of year, we should be drawing down in crude inventories, and we are still building," said Tariq Zahir, trader in crude oil spreads at Tyche Capital Advisors in New York.

U.S. West Texas Intermediate crude settled down 2.5 percent at $41.71 per barrel. Brent crude settled down 2 percent at $44.05.

The dollar <.DXY> was 0.6 percent weaker against a basket of currencies. The greenback has retreated from gains in the wake of Friday's strong U.S. jobs report.

More clarity about the U.S. economy's health and the next move on interest rates from the Federal Reserve could come with Friday's release of July retail sales and a speech by Janet Yellen, the chair of the U.S. central bank, later this month.

U.S. Treasury prices rose after a strong 10-year note auction that reinforced investor appetite for safe-haven U.S. government debt amid limited economic data and rising concern about the effectiveness of global central bank policy.

The benchmark 10-year Treasury note was last up 11/32 in price to yield 1.509 percent.

(Additional reporting by Karen Brettell, Barani Krishnan and Dion Rabouin in New York and Noel Randewich in San Francisco; Editing by James Dalgleish)

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