NEW YORK (Reuters) - Oil prices retreated sharply on Thursday as a possible strike on Syria remained uncertain, driving traders to book profits ahead of a holiday weekend in the United States, while signs of strong U.S. economic growth drove sent the dollar to a three-week peak.
Brent crude for October delivery settled $1.45 lower at $115.16 per barrel, after trading as low as $114.91 just ahead of the market close. Brent had jumped more than 5 percent in the previous two sessions, for its strongest two-day gain since January 2012.
The United States and its allies had been gearing up for an attack in response to reports that the Syrian government used poison gas against its civilians. The White House said on Thursday it was contemplating a “very discrete and limited” response to any findings that Syria used chemical weapons.
Still, the United States and its allies have “no smoking gun” to prove Assad personally ordered the attack, U.S. national security officials said.
The lack of clarity from Western powers on Thursday about what their next move might be kept the market “jittery,” prompting traders to sell out of their positions.
“People don’t want to go home long or short the market,” said Rich Ilczyszyn, chief market strategist and founder of iitrader.com LLC in Chicago.
In the currency market, the dollar rallied to a more than three-week high against a basket of major currencies after data on the U.S. economy emboldened the view that the Federal Reserve could next month begin winding down its stimulus program.
On Wall Street, stocks ended higher in thin volume, continuing to rebound after suffering its worst daily decline since June earlier this week. Over the past two sessions, the S&P has gained about 0.5 percent, but remains down 1.5 percent for the week.
The Dow Jones industrial average .DJI ended up 16.44 points, or 0.11 percent, at 14,840.95. The Standard & Poor's 500 Index .SPX closed up 3.21 points, or 0.20 percent, at 1,638.17. The Nasdaq Composite Index .IXIC ended up 26.95 points, or 0.75 percent, at 3,620.30.
The FTSEurofirst 300 .FTEU3 closed up 0.7 percent at 1,207.05 points, bouncing back after falls of some 2 percent over the last two days.
The MSCI world equity index .MIWD00000PUS, which tracks shares in 45 countries, was up 0.2 percent.
“That there will be an attack is priced into markets, but there’s no way the market appreciates the implications beyond that if the U.S. were to go to war,” said Joe Tanious, global market strategist at J.P. Morgan Funds in New York. “It will create a lot of side effects the market isn’t aware of, with the impact on oil the main complication.”
U.S. crude oil for October delivery settled down $1.30 per barrel at $108.80, not far off its session low of $108.40.
The dollar rallied against a basket of major currencies after data showed the American economy grew at a 2.5 percent annual rate in the second quarter, more quickly than expected.
Other data showed weekly news claims for unemployment benefits fell, bolstering the case for the Federal Reserve to begin winding down its massive economic stimulus program.
“This is a good report for those who expect the Fed to taper in September,” said Vassili Serebriakov, currency strategist at BNP Paribas in New York.
“One of the key concerns that the Fed has voiced recently has been the dichotomy between firm employment and soft GDP growth. This should ease some of those concerns,” he said.
The dollar was last 0.7 percent higher against a basket of currencies .DXY at 81.958, after earlier hitting 82.067, its highest level since August 5. Against the safe-haven Japanese yen, the greenback traded up 0.7 percent at 98.28 yen.
In emerging markets, Brazil’s decision to raise its benchmark interest rate to a 16-month high of 9 percent on Wednesday helped stabilize the real, while in Indonesia the rupiah strengthened slightly after the country’s central bank hiked its key lending rates. IDnL4N0GM1MF
The Indian rupee rose as high as 66.85 per dollar, up sharply from a record low of 68.85 per dollar hit on Wednesday when the Indian central bank moved to provide dollars directly to oil companies to give the currency some relief.
Emerging market currencies in countries with high current account deficits such as India, Turkey and Brazil have plunged between 12 and 18 percent against the dollar this year on expectations of a withdrawal of the U.S. monetary stimulus that has boosted riskier assets.
Prices for U.S. Treasuries advanced on Thursday as investors began positioning themselves for the month-end and the long holiday weekend. The benchmark 10-year Treasury note rose 6/32 in price to yield 2.745 percent on Thursday, from 2.765 percent late on Wednesday.
Global oil production: link.reuters.com/gak68s
Emerging market currencies: link.reuters.com/xav52v
Additional reporting by Jeanine Prezioso, Julie Haviv, Ryan Vlastelica and Luciana Lopez; editing by Dan Grebler and Leslie Adler