U.S., European shares flat after U.S. data; oil falls

August 31, 2016 8:50 PM EDT

A man looks at an electronic board showing market indices outside a brokerage in Tokyo, Japan, March 2, 2016. REUTERS/Thomas Peter

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By Sam Forgione

NEW YORK (Reuters) - U.S. and European stocks ended mostly flat and the dollar fell on Thursday after a report showing weakness in U.S. manufacturing last month weighed on shares as investors eyed Friday's monthly U.S. jobs data, while oil prices tumbled.

The Institute for Supply Management said its index of national factory activity fell to 49.4 in August, below expectations of economists polled by Reuters for a dip to just 52.0. It was the first contraction in manufacturing since February.

The data hurt sentiment amid an already nervous investor environment ahead of Friday's U.S. employment report for August. Federal Reserve Vice Chair Stanley Fischer said last week that the central bank would consider the jobs data when discussing when to next raise interest rates.

Employers are expected to have added 180,000 jobs in August, according to a Reuters poll of economists.

The benchmark U.S. S&P 500 <.SPX> fell as much as 0.7 percent after the ISM data before stabilizing. The tech-heavy Nasdaq <.IXIC> rose, boosted by Charter Communications (NASDAQ: CHTR), which gained 4.5 percent.

The weak U.S. ISM data also stifled European shares. Stocks in the region had earlier climbed to two-week highs.

"The ISM data was, in a word, disappointing," said Peter Kenny, senior market strategist at Global Markets Advisory Group in New York. "It has forced investors to reconsider the landscape, not go blindly into the narrative that spells out a certainty about interest rates being bumped up in September.

"Oil prices extended Wednesday's declines, with the market focused for a second straight day on U.S. government data showing a rise in U.S. crude stocks in the latest week.

MSCI's all-country world equity index <.MIWD00000PUS> was last up 0.8 point, or 0.19 percent, at 417.41.

The Dow Jones industrial average <.DJI> ended up 18.42 points, or 0.1 percent, at 18,419.3. The S&P 500 <.SPX> ended down 0.09 point, or flat, at 2,170.86. The Nasdaq Composite <.IXIC> gained 13.99 points, or 0.27 percent, at 5,227.21.

Europe's broad FTSEurofirst 300 index <.FTEU3> closed down 0.08 percent, at 1,351.17.

Brent crude settled down $1.44, or 3.07 percent, at $45.45 a barrel. U.S. crude settled down $1.54, or 3.45 percent, at $43.16 a barrel.

The dollar index <.DXY>, which measures the greenback against a basket of six major currencies, pulled back from Wednesday's more than three-week high of 96.255 and was last down 0.42 percent at 95.620 after the ISM data cast doubts on the strength of the U.S. economy.

U.S. Treasury yields were little changed ahead of Friday's U.S. jobs data. Benchmark 10-year yields were last at 1.570 percent, compared with 1.568 percent late on Wednesday.

"The scenario that the market is not ready for is for a strong number tomorrow and for the Fed to guide toward a rate hike in September," said Subadra Rajappa, head of U.S. rates strategy at Societe Generale. The dollar's weakness helped spot gold recover after touching a more than two-month low of $1,301.91 an ounce. U.S. gold futures settled up 0.4 percent at $1,317.10.

(Additional reporting by Marc Jones in London, Dion Rabouin, Chuck Mikolajczak and Karen Brettell in New York; Editing by Nick Zieminski and Dan Grebler)

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