Stocks edge lower, oil jumps on supply concerns over Mideast, Libya
S&P 500, Nasdaq indexes finish lower
Nikkei slips as yen climbs
Markets imply nearly 40% chance Fed cuts by 50 bps
Oil gains as Libya shuts production, Israel-Hezbollah spar
Investors await Nvidia earnings and key inflation data this week
Updates prices throughout with U.S. market close, oil settlement
By Chibuike Oguh and Dhara Ranasinghe
NEW YORK/LONDON, Aug 26 (Reuters) -World equity markets edged lower on Monday as investors digested the likelihood of U.S. interest rates being lowered soon, even as oil prices jumped amid increased tensions in the Middle East.
The benchmark S&P 500 index .SPX and the Nasdaq .IXIC finished lower after giving up early gains, while the Dow .DJI climbed. European shares .STOXX ended slightly down, with trading subdued in the London market, which is closed for a public holiday. Japan's blue-chip Nikkei stock index also closeddown almost 0.7% .N225 as the yen firmed.
The Dow Jones Industrial Average .DJI rose 0.16% to 41,240.52, the S&P 500 .SPX lost 0.32% to 5,616.84 and the Nasdaq Composite .IXIC lost 0.85% to 17,725.77. MSCI's World Index of stocks across the globe .MIWD00000PUS fell 0.20%to 829.64.
The stock market "is digesting a lot of news: obviously there was a rally on Friday on (Federal Reserve Chair Jerome) Powell's comments and we thought durable goods orders come in good," said Ben McMillan, principal and chief investment officer at IDX Insights in Tampa, Florida.
"Historically rate cuts have actually preceded equity market weakness because rates are being cut for a reason."
AI chip maker Nvidia NVDA.O reports earnings on Wednesday, and market expectations are sky-high. Nvidia stock is up some 160% year-to-date, accounting for around a quarter of the S&P 500's 18% year-to-date gain.
"The big thing this week is really Nvidia more than any of the macro stuff. I think folks are really focused on Nvidia because that's been kind of the bellwether for the risk-on trade this year," McMillan added.
Israel and Hezbollah traded rocket salvos and airstrikes on Sunday, stirring worries about possible oil supply disruptions if the conflict escalated. Also supporting crudeprices wasLibya's eastern-based government announcement of the closure of all oil fields, which halted production and exports.
Brent crude futures LCOc1 closed up 3.05% at $81.43 a barrel, while U.S. crude futures CLc1 settled 3.5% higher at $77.42 a barrel.
New orders for long-lasting U.S.-made goods USDGN=ECI, items ranging from toasters to aircraft, surged by 9.9% last month, a solid rebound from a decline in June that beat analyst expectations, Commerce Department data showed.
In a highly-anticipated speech to the Jackson Hole symposium on Friday, Powell said the time had come to start easing policy and emphasised the central bank did not want to see further weakening in the labour market.
European Central Bank chief economist Philip Lane struck a more cautious note in his Jackson Hole speech, saying the central bank was making "good progress" in cutting euro zone inflation back to its 2% target, but success was not yet assured.
The yield on benchmark U.S. 10-year notes US10YT=RR rose 1.3 basis points to 3.82%. The two-year note US2YT=RR yield, which typically moves in step with interest rate expectations, rose 2.7 basis points to 3.94%.
Fed fund futures 0#FF: are fully priced for a quarter-point cut at the Sept.18 meeting, and imply a 39.5% chance of a 50 bps move. The market also has 103 bps of easing priced in for this year and another 122 bps in 2025. FEDWATCH
The ECB has already started cutting rates, with a 25 bps reduction in July, with a further two quarter point reductions priced in by year-end.
"I think it's more likely than not that we're going to see 75 bps cut this year. And the market has some potential readjustment for less rate cuts than is being priced in," McMillan said.
DOLLAR INDEX UP, GOLD FIRMS
U.S personal consumption and core inflation data are dueon Friday, along with a flash reading on European Union inflation. Most analysts expectthe data will allow forrate cuts in September.
The Japanese yen rose to a three-week high against the U.S. dollar, with the dollar droppingto 143.45 JPY=EBS yen butpared losses and was last slightly up 0.14%at 144.56.
The dollar index =USD, which measures the greenback against a basket of currencies including the yen and the euro, gained 0.24%at 100.84, with the euro EUR= down 0.28% at $1.1159.
Gold prices firmed, nearing the recent record high on safe-haven demand. Spot gold XAU= added 0.31% to $2,518.27 an ounce. U.S. gold futures GCc1 gained 0.28% to $2,515.50 an ounce.
Reporting by Chibuike Oguh in New York, Dhara Ranasinghe in London; Editing by Mark Potter, Nick Zieminski, Marguerita Choy and David Gregorio
To read Reuters Markets and Finance news, click on https://www.reuters.com/finance/markets For the state of play of Asian stock markets please click on: 0#.INDEXA
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