* S&P500 index down 0.4 pct, European stocks off 0.4 pct
* Crude oil tumbles in volatile afternoon trading
* U.S. 10-year rises, Spanish yields above 6 pct
By Ryan Vlastelica
NEW YORK, Sept 17 (Reuters) - Stocks in the United States and Europe gave back some of last week’s huge gains on Monday as investors began to question whether recent action by both the European Central Bank and Federal Reserve would be enough to revive global economic growth.
In the euro zone, Spanish and Italian bond yields rose while German bond yields fell, but the euro held up near the four month highs seen last week in the wake of recent decisions by both the ECB and the Fed to effectively become open ended lenders of last resort.
Commodity prices fell with gold giving back some of last week’s gains and crude oil prices tumbled about 2.5 percent.
“Everyone is still reeling from last week - that is part of it,” said Stephen Massocca, managing director at Wedbush Morgan in San Francisco. “But on the other hand, it starts to become increasingly more difficult to pull the trigger on buy orders at these valuations.”
The Dow Jones industrial average was down 43.48 points, or 0.32 percent, at 13,549.89. The Standard & Poor’s 500 Index was down 5.53 points, or 0.38 percent, at 1,460.24. The Nasdaq Composite Index was down 10.80 points, or 0.34 percent, at 3,173.15.
Wall Street stocks surged to nearly five-year highs last week in the wake of the Fed’s decision to buy mortgage bonds indefinitely and support economic growth until unemployment falls.
The FTSEurofirst 300 index of leading European stocks closed down 0.3 percent, pulling back from a 14-month high hit in the previous session. World stocks fell 0.5 percent.
But fund flow data from EPFR showed Europe equity funds posted their biggest net inflows since early May in the week to September 12 as the ECB action encouraged more investors to take on equity risk and move out of conservative debt.
“There is still good upside potential for stocks as we are re-pricing the ‘non-break-up’ of the euro zone. We’ve just started to realize all the downside that came from the debt crisis,” said Louis Capital Markets trader Jerome Troin-Lajous.
“Now, the main signal we need that would fuel this rally won’t be coming from the economic outlook, it will come from the investment flows. A lot of foreign investors have been strongly ‘underweight’ European stocks and should start to switch out of bonds and out of U.S. equities and into European stocks.”
Commodities, including oil, gold and copper all retreated on Monday after a rally last week. Brent crude oil fell 2.9 percent.
While riskier markets should get a boost from the U.S. stimulus plan, organic growth is ultimately needed to sustain a recovery and there are concerns about the economy’s ability to generate such growth amid macroeconomic headwinds.
“The Federal Reserve’s decision to engage in an open-ended purchase program reinforces the carry trade in the U.S. dollar and risk assets. It is unlikely to produce meaningful change in economic growth, in our view,” Jefferies analysts said in a note.
The euro traded down 0.19 percent against the U.S. dollar after weaker-than-expected U.S. regional economic data.
“We are due some consolidation. We could trade below $1.30 again but will see $1.35 by year-end. It’s a combination of improvements in Europe and deteriorating dollar sentiment,” said Daragh Maher, currency strategist at HSBC.
The greenback is expected to remain under pressure in the coming weeks as the effects of the U.S. stimulus plan work their way through the system.
It remained near a seven-month low against a basket of key currencies on Monday and extended losses versus the yen .
The dollar’s drop in recent weeks has been in contrast to the euro, which has been the strongest-performing major global currency. Its rise has been supported by the ECB’s plan to help lower the borrowing costs of indebted euro zone countries, if and when the countries concerned - chiefly Spain - ask for that help.
The reversal of Friday’s trend in currencies and stocks also fed through into the bond market, with German Bunds, up 16 ticks.
The benchmark 10-year U.S. Treasury note was up 10/32, the yield at 1.8345 percent.
“A lot of good news is priced in and now the market is pondering whether or when Spain might require a bailout,” said Rabobank rate strategist Richard McGuire. “The realization is dawning it might not be rushing.”
Reflecting the uncertainty, Spanish 10-year bond yields hovered around 6 percent. Spanish Prime Minister Mariano Rajoy has said he would not accept a rescue that dictated spending cuts.
“The market has priced in an actual bailout and the longer Spain prevaricates, the greater the risk the market will strong-arm them into accepting a support package,” McGuire said.