NEW YORK World equity markets rose to a 20-month high on Friday after data indicated economic momentum was picking up in China and the United States, while the yen hit new lows ahead of next week's Bank of Japan meeting.
But U.S. stocks faltered in early trading after hitting five-year highs on Thursday, with sentiment undermined by a disappointing earnings outlook from chipmaker Intel and a report showing U.S. consumer sentiment weakened for a second straight month to its lowest in over a year in January.
The Thomson Reuters/University of Michigan's preliminary reading on the overall index on consumer sentiment was 71.3, down from 72.9 the month before. The index was at its lowest since December 2011.
"It's a disappointing figure and helped put pressure on risky assets," said Greg Moore, a currency strategist at TD Securities in Toronto.
"Markets for the last two weeks have been grinding higher, without much fundamentals backing it up. So this is a reality check. But it's still fairly early in the year and things could change."
An upgrade of Caterpillar (CAT.N) to overweight from neutral by Piper Jaffray helped buoy the Dow, but the S&P 500 and Nasdaq dipped modestly. Piper Jaffray also raised its price target to $113. In early trading, Caterpillar was up 1.1 percent at $96.78.
The Dow Jones industrial average was down 1.57 points, or 0.01 percent, at 13,594.45. The Standard & Poor's 500 Index was down 1.91 points, or 0.13 percent, at 1,479.03. The Nasdaq Composite Index was down 8.05 points, or 0.26 percent, at 3,127.96.
China reported that its economy grew at a slightly faster-than-expected 7.9 percent in the fourth quarter of 2012, a clear sign it has avoided a sharp economic slowdown, though the annual growth rate was its weakest in 13 years.
The Chinese data came on top of strong U.S. labor and housing market reports on Thursday, providing fresh impetus to a broad rally in equities, precious metals and commodities since the start of the year.
MSCI's index of leading world shares hit its highest level since May 2011 at 351.70 points, while gold was up $2.10 at $1,689.30 an ounce.
But oil prices slipped from their highs, having already gained strongly this week on a brighter growth outlook and supply concerns after the failure of U.N. talks with Iran and amid a hostage crisis at an Algerian gas field.
Brent crude was down 27 cents at $110.83 barrel, retaining the bulk of Thursday's $1.42 a barrel gain, while U.S. oil was down 14 cents at $95.35 a barrel, also holding on to the bulk of the previous session's $1.25 gains.
In Europe, the broad FTSEurofirst 300 index was flat near a two-year high at 1,165.86 as investors locked in some recent gains before the corporate earnings season gets underway in earnest next week.
The stronger U.S. data and mounting expectations for more aggressive easing by the Bank of Japan (BOJ) next week lifted the dollar past 90 yen to its highest since June 2010, and the euro to its peak since May 2011 of 120.73 yen.
Sources familiar with the BOJ's thinking told Reuters the central bank, under relentless pressure from Prime Minister Shinzo Abe, will consider making an open-ended commitment to buy assets until 2 percent inflation is in sight.
"This is a big deal," said Jens Nordvig, global head of currency strategy at Nomura Securities in New York.
"But as always from a trading perspective, it matters greatly what is already priced," he said.
The euro last traded 0.4 percent lower against the yen at 119.62 yen, down from 120.70 earlier - its highest since May 2011.
The euro was also down against the dollar, falling 0.5 percent on the day to $1.3305.
China trade suite: link.reuters.com/fut96s
China GDP and exports: link.reuters.com/zeq95s
U.S. weekly jobless claims: link.reuters.com/xew34t
The benchmark 10-year U.S. Treasury note was up 9/32 in price to yield 1.8505 percent.
(Editing by Bernadette Baum)