Stocks wiped out gains on speculation the rally that followed softer inflation data went too far, with the Federal Reserve still set to keep its monetary policy tight. Bond yields climbed.

The S&P 500 edged lower after an advance that topped 1 per cent earlier in the day and put the gauge near the 50 per cent Fibonacci retracement level for the current bear market. Several analysts attributed the recent surge to short-covering. Tech underperformed following a runup that sent the Nasdaq 100 more than 20 per cent above its June lows. Big names like Tesla Inc. and Amazon.com Inc. sank.

Treasuries dropped, sending 30-year yields soaring nearly 16 basis points after an auction of the securities drew middling demand despite having cheapened into the bidding deadline.

Earlier gains in stocks were driven by data showing a key measure of US producer prices unexpectedly slipped for the first time in more than two years. Similar to the consumer prices report on Wednesday, both the overall and core figures were softer than forecast. 

Even so, inflation remains stubbornly high and will likely keep the Fed on an aggressive path to curb it. Swaps continued to price in a 50-basis-point rate hike by the US central bank in September.

“We’ve had developments over the last couple of days that suggest that maybe the environment is getting a little bit better,” Anthony Saglimbene, global market strategist at Ameriprise, told Bloomberg Television. “But inflation is still very, very high. There’s a lot of work for the Federal Reserve to continue to raise interest rates.”

A separate report showed applications for US unemployment insurance rose for a second week and held near the highest level since November -- indicating continued moderation in the labor market.

UBS Global Wealth Management’s Mark Haefele reiterated his stance that “this is not the time to make big directional calls on the market” amid “ambiguity about the direction of the economy and Fed policy.”

By one measure, the Fed has achieved one of its policy goals in fighting rising prices. 

Inflation-adjusted US rates have climbed above zero across the curve for the first time since the central bank started tightening this year. A positive near-term real rate means investors expect the policy rates to rise above inflation in coming months.

Elsewhere, oil gained after the International Energy Agency boosted its forecast for global demand growth this year, easing concerns about consumption. West Texas Intermediate topped US$94 a barrel, while Brent again neared US$100.

What to watch this week:

• Euro-area industrial production, Friday
• US University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 was little changed as of 4 p.m. New York time
• The Nasdaq 100 fell 0.6 per cent
• The Dow Jones Industrial Average was little changed
• The MSCI World index was little changed

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro rose 0.2 per cent to US$1.0318
• The British pound fell 0.2 per cent to US$1.2190
• The Japanese yen fell 0.2 per cent to 133.11 per dollar

Bonds

• The yield on 10-year Treasuries advanced 11 basis points to 2.89 per cent
• Germany’s 10-year yield advanced eight basis points to 0.97 per cent
• Britain’s 10-year yield advanced 11 basis points to 2.06 per cent

Commodities

• West Texas Intermediate crude rose 2.3 per cent to US$94.09 a barrel
• Gold futures fell 0.7 per cent to US$1,801.50 an ounce