Wall Street closes with modest gains, dollar weakens as trade tensions flare

By Stephen Culp

NEW YORK (Reuters) -Wall Street ended a choppy session higher on Monday and the dollar softened as trade tensions between Washington and Beijing heated up and investors showed caution ahead of U.S. employment data and a widely expected policy rate cut from the European Central Bank.

The S&P 500 notched a modest advance, while tech boosted the Nasdaq to a more substantial gain. The blue-chip Dow ended the session barely in positive territory.

The greenback, under pressure amid revived trade strife, weakened as benchmark U.S. Treasury yields ticked higher. 

Souring risk appetite boosted gold to more than a three-week high against the weakening greenback.

On Sunday, U.S. Treasury Secretary Scott Bessent said President Donald Trump would speak soon with Chinese President Xi Jinping to iron out tensions over a mutually agreed-upon rollback of tariffs on critical minerals after Trump accused Beijing of violating that agreement. 

Beijing called Trump's accusation "groundless," and vowed to take forceful measures to protect its interests.

"Investors and businesses continue to face a lot of uncertainty related to rate tariffs and fiscal policy, and how monetary policy will respond," said Bill Merz, head of capital market research at U.S. Bank Wealth Management, Minneapolis. 

"Today’s market is about expectations and uncertainties and the degree to which these uncertainties become self-fulfilling," Merz added. "We haven’t seen that yet, but that’s what we need to watch for."

A report from the Institute for Supply Management showed the U.S. manufacturing sector contracted at a steeper-than-expected pace in May, while construction expenditures defied consensus by falling in April.

 The Dow Jones Industrial Average rose 35.41 points, or 0.08%, to 42,305.48, the S&P 500 rose 24.25 points, or 0.41%, to 5,935.94 and the Nasdaq Composite rose 128.85 points, or 0.67%, to 19,242.61. 

European stocks closed lower amid rekindled trade tensions after Trump's announcement late on Friday that he intends to double tariffs on imported steel and aluminum to 50%, starting Wednesday.

The move drew promises of retaliation from the European Union and sent shares of steel exporters lower.

Geopolitical tensions flared as the Ukraine-Russia conflict intensified over the weekend.

Polish stocks fell 0.6% in the wake of nationalist opposition candidate Karol Nawrocki's election victory.

MSCI's gauge of stocks across the globe  rose 3.38 points, or 0.38%, to 882.88.

The pan-European STOXX 600 index fell 0.14%, while Europe's broad FTSEurofirst 300 index fell 3.06 points, or 0.14%

Emerging market stocks  fell 3.70 points, or 0.32%, to 1,153.64. MSCI's broadest index of Asia-Pacific shares outside Japan closed lower by 0.26%,  to 607.38, while Japan's Nikkei  fell 494.43 points, or 1.30%, to 37,470.67.

The dollar lost ground against other major currencies, backing down from the previous week's gains as markets assessed the outlook for Trump's unpredictable trade policy and its potential for dampening growth and fuelling inflation.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.69% to 98.67, with the euro up 0.85% at $1.1444.

Against the Japanese yen, the dollar weakened 0.93% to142.7.

Longer-dated U.S. Treasury yields were mostly higher in the wake of Trump's tariff announcement, but yields slightly pared gains after the manufacturing data.

The yield on benchmark U.S. 10-year notes rose 3.2 basis points to 4.45%, from 4.418% late on Friday.

The 30-year bond yield  rose 4.6 basis points to 4.9779% from 4.932% late on Friday.

The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose 2.5 basis points to 3.939%, from 3.914% late on Friday.

Crude oil prices surged after OPEC+ held July output increases at the same level as the previous two months, while wildfires in Canada's oil-producing province threatened supply.

U.S. crude rose 2.85% to settle at $62.52 per barrel, while Brent settled at $64.63 per barrel, up 2.95% on the day.

Gold prices touched a one-week high as elevated caution attracted investors to the safe-haven metal.

Spot gold rose 2.77% to $3,380.41 an ounce. U.S. gold futures rose 2.74% to $3,379.00 an ounce.

Copper rose 1.23% to $9,615.00 a tonne. Three-month aluminum on the London Metal Exchange rose 1.23% to $2,474.15 a tonne. 

(Reporting by Stephen Culp, Wayne Cole and Amanda CooperEditing by Rod Nickel, Nick Zieminski and Cynthia Osterman)