US, European stocks fall as markets focus on strong dollar

US and European stocks drifted lower on Friday while the euro struck a near 12-month low against the dollar on persistent market expectations of US interest rate hike next month.

On Wall Street, the jubilant post-election rally that greeted Donald Trump's victory last week showed signs of fading, with all major indices finishing down 0.2 percent but still up for the week.

Peter Cardillo of First Standard Financial said stocks could be suffering in part due recent events on the currency exchange and bond markets.

"I do not expect a major pull back but the Trump rally might be fading due to the strong dollar and higher yields," he said.

The US dollar this week has climbed to its highest level in almost 14 years and major indices remained in near-record territory

The euro slumped to $1.0569, the lowest level since early December last year. The greenback also reached 110.93 yen, a high since the end of May.

Across the Atlantic, London, Frankfurt and Paris stocks all closed the day with small losses. The Euro Stoxx 50 index fell further, settling down 0.7 percent.

Meanwhile in Asia, Japan's Nikkei index rallied as the dollar surged against the yen, cheering exporters. Elsewhere in Asia, foreign investors removed cash from emerging markets to seek out better US returns, traders said.

- Trump and the dollar -

The strong dollar weighed on both gold and oil prices. Gold slumped to a near six-month low at $1,202.80 an ounce.

Trump's promises to spend on infrastructure and cut taxes have led to warnings of a surge in inflation that would force the Fed to hike rates to cap prices. This in turn has led to a rush back into the dollar.

"The dollar is once more at the forefront of investors' mindsets, as the incessant rise which has dominated the post-election period continues apace," said Joshua Mahony, market analyst at IG traders.

"In a high-growth environment, it is likely we will see investors moving into the US as a source of capital appreciation. 

"However, the hesitancy seen in US stock markets is a clear nod to the fact that with such dollar appreciation comes an environment which is progressively more difficult for US exporters," he added.

- Key figures around 2200 GMT -

New York - Dow: DOWN 0.2 percent at 18,867.93 (close)

New York - S&P 500: DOWN 0.2 percent at 2,181.90 (close)

New York - Nasdaq: DOWN 0.2 percent at 5,321.51 (close)

London - FTSE 100: DOWN 0.3 percent at 6,775.77 points (close)

Frankfurt - DAX 30: DOWN 0.2 percent at 10,664.56 (close) 

Paris - CAC 40: DOWN 0.5 percent at 4,504.35 (close)

EURO STOXX 50: DOWN 0.7 percent at 3,020.83 (close)

Tokyo - Nikkei 225: UP 0.6 percent at 18,967.41 (close)

Hong Kong - Hang Seng: UP 0.4 percent at 22,344.21 (close)

Shanghai - Composite: DOWN 0.5 percent at 3,192.86 (close)

Euro/dollar: DOWN at $1.0592 from $1.0627 Thursday

Dollar/yen: UP at 110.90 yen from 110.09 yen 

Pound/dollar: DOWN at $1.2353 from $1.2418

Oil - West Texas Intermediate: UP 27 cents at $45.69 per barrel

Oil - Brent North Sea: UP 37 cents at $46.86