By Chuck Mikolajczak
NEW YORK (Reuters) - Global equity markets declined for a second straight day on Thursday while the dollar and bond yields rose after comments from Federal Reserve Chairman Jerome Powell caused investors to alter expectations for a rate cut by the central bank this year.
On Wall Street, the Dow and S&P gave up initial gains and turned negative as the energy sector weakened on a drop in oil prices. The Nasdaq showed modest gains, buoyed in part by a climb in Oracle shares after its quarterly results.
As earnings season winds down and with the majority of profit reports in the rear mirror, investor focus will shift back to macro concerns such as economic data and trade issues, including Friday's U.S. employment report.
Global equities snapped a three-day streak of gains on Wednesday, as Powell's comments following the Fed's policy announcement dampened market expectations the Fed would cut rates this year.
"The fact is they got spooked yesterday, because they are all betting the Fed is going to cut," said Ken Polcari, managing principal at Butcher Joseph Asset Management in New York.
"After what happened yesterday and the nervousness that created they are going to take any headline now that is negative and they are going to accentuate it."
The Dow Jones Industrial Average fell 150.9 points, or 0.57%, to 26,279.24, the S&P 500 lost 8.96 points, or 0.31%, to 2,914.77 and the Nasdaq Composite dropped 26.82 points, or 0.33%, to 8,022.82.
European shares closed lower, suffering their biggest daily percentage drop in about six weeks, as most markets returned from the May Day holiday. Basic resources shares weighed as metals such as copper slumped. In addition, euro zone factory activity data pointed to a third straight month of contraction.
The pan-European STOXX 600 index lost 0.58% and MSCI's gauge of stocks across the globe shed 0.44%.
Oil prices fell more than 2% as the market grappled with oversupply fears as increased U.S. sanctions on Iran had more incremental impact than expected and U.S. crude oil inventories rose sharply.
U.S. crude fell 3.19% to $61.57 per barrel and Brent was last at $70.47, down 2.37% on the day.
The dollar index strengthened for a second day against a basket of major currencies, going as high as 97.83. The pound slipped after the Bank of England kept rates on hold while lifting its growth forecast but cautioned that Brexit made economic figures harder to interpret.
Bank of England Governor Mark Carney said investors were underestimating how much interest rates could rise, even as the British central bank kept borrowing costs on hold due to the uncertainty about Britain leaving the European Union.
The dollar index rose 0.11%, with the euro down 0.13% to $1.1179. Sterling was last trading at $1.3027, down 0.17% on the day.
U.S. Treasury yields rose as investors continued to digest Powell's comments. Benchmark 10-year notes last fell 11/32 in price to yield 2.5504%, from 2.511% late on Wednesday.
(Addiitonal reporting by Shreyashi Sanyal and Sruthi Shankar in Bengaluru; Editing by James Dalgleish and Chizu Nomiyama)
