NEW YORK (Reuters) - The dollar and U.S. stocks dipped on Friday, taking a breather following this week's big moves after the Federal Reserve signaled a faster pace of U.S. interest rate increases next year.
U.S. Treasury debt yields inched higher, continuing a weeks-long trend. Markets appeared to be adjusting for what is expected to be a quiet holiday period for economic data.
News that a Chinese warship has seized an underwater drone deployed by a U.S. oceanographic vessel in the South China Sea sparked some worries about geopolitical tensions and added to some of the pressure in stocks, Jason Ware, chief investment officer at Albion Financial Group, Salt Lake City, Utah, and other market watchers said.
But he said it has mostly been a day where investors have been digesting recent market moves.
"Whether it's stocks soaring post-election, or bonds selling off equally as violently or the dollar going up, there's been a lot of adjustment in the market in a very short period of time," Ware said.
"Depending on the asset class and which side of the trade you're on, there are a lot of folks saying ... I'm not as comfortable putting on new trades in the same direction until we get a bit of a reprieve."
Bond yields have surged and the dollar rallied to 14-year highs since the Fed on Wednesday raised rates for the first time in a year and signaled three more rate increases in 2017. The dollar has strengthened to almost parity with the euro.
U.S. stocks ended lower and the S&P 500 posted a slight loss for the week, weighed down by a 4.3 percent drop in Oracle shares.
The Dow Jones industrial average closed down 8.83 points, or 0.04 percent, to 19,843.41, the S&P 500 lost 3.96 points, or 0.18 percent, to 2,258.07 and the Nasdaq Composite dropped 19.69 points, or 0.36 percent, to 5,437.16.
World stocks as measured by the MSCI world equity index, which tracks shares in 46 countries, were last down 0.01 percent.
European shares closed up 0.3 percent. Merger and acquisition speculation around drug maker Actelion and insurer Generali helped the benchmark index set an 11-month high earlier.
In the foreign exchange market, the dollar index, which measures the greenback against a basket of six major rivals, edged lower but held near 14-year highs touched after Wednesday's Fed meeting. It was last at 102.81 down 0.2 percent on the day.
Benchmark 10-year U.S. Treasury note yields posted six straight weeks of gains. In late trading, 10-year prices were down 6/32, yielding 2.600 percent, up from Thursday's 2.578 percent. On the week, 10-year yields have gained 13 basis points.
In commodities, a strong dollar and signs of mounting supply in London Metal Exchange warehouses dragged copper prices lower. Other industrial metals also slipped.
Benchmark LME copper closed down 1.7 percent at $5,635 a tonne.
Oil rose after Goldman Sachs boosted its price forecast for 2017 and producers showed signs of adhering to a global deal to reduce output.
Brent futures rose $1.19 to settle at $55.21 a barrel, while U.S. West Texas Intermediate crude rose $1 to settle at $51.90.
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Editing by Nick Zieminski and James Dalgleish