By Koh Gui Qing

NEW YORK (Reuters) – U.S. stocks hit a one-month low on Tuesday as speculation that rising inflation pressure could prompt interest rate hikes sooner rather than later dragged on shares and hobbled the dollar, which hovered near a 2-1/2-month low.

Technology stocks were among the biggest losers, mirroring a sell-off in China, where talk of tighter regulation sent technology shares skidding.

But U.S. shares clawed back some of their losses over the course of the day, with the tech-focused Nasdaq Composite reversing the bulk of its early 2% decline.

Investors said the snap back in shares suggested that inflation concerns were not quite so entrenched yet, despite rising commodity prices and labor shortages in the United States. They said the sheer volume of money sloshing around in financial markets also meant some individuals are always looking to invest their cash on pull-backs.

“Welcome to a lot of money,” said Paul Nolte, a portfolio manager at Kingsview Investment Management, which oversees $2 billion. “The worry is maybe inflation is something more than transitory, but it looks like this is a mood swing for now rather than a longer-term concern.”

The Nasdaq Composite ended little changed, while the Dow Jones Industrial Average dropped 1.4%. The S&P 500 fell 0.9%, off a one-month low struck earlier Tuesday.

Bets that inflation could accelerate in the coming months burst to the fore on Monday when the breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) – a measure of inflation expectations – jumped to a decade-high 2.717%. It traded at 2.695% by late Tuesday.

The 10-year TIPS breakeven rate stood at 2.539%, indicating that the market sees inflation averaging 2.5% a year for the next decade.

All eyes are now on the U.S. consumer price index report to be released by the U.S. Labor Department on Wednesday. Until then, some investors appeared to be buying on dips.

The dollar, which slipped to a 10-week low on Tuesday on concerns that mounting price pressures could erode its value, also narrowed some of its earlier losses.

The dollar index, which measures the greenback against six major currencies, was little changed at 90.188, after touching a low of 89.979. [USD/]

The currencies of major natural resource suppliers such as Canada held ground amid rising commodity prices. The loonie was little changed at C$1.2097 after hitting a 3-1/2-year high of C$1.2078.

The Australian dollar, another proxy for commodity prices, was steady at $0.7839, but off a 10-week high of $0.7891 struck on Monday.

Gold also recouped early declines, as a softer dollar offset losses generated by rising U.S. Treasury yields. Spot gold edged up 0.11% to $1,837.39 per ounce, after dropping as much as 1% earlier.

In keeping with market worries about a pick-up in inflation, the yield on benchmark 10-year Treasuries edged up to 1.6235%, though off a high of 1.6310%. [US/]

The spread between benchmark two- and 10-year Treasuries also widened slightly to 146 basis points, up more than 1 basis point from the previous day.

Oil prices were not spared of the day’s volatility, and had reversed all early losses by the end of Tuesday’s session, lifted by fears of a gasoline shortage after a cyber attack caused an outage at the largest U.S. fuel pipeline system.

U.S. crude gained 0.8% to $65.44 a barrel. Brent crude added 0.5% to $68.69 per barrel. [O/R]

In cryptocurrencies, ether dipped from record levels hit on Monday, but was nevertheless up 3.7% at $4,101.15. The value of the second-biggest digital token has surged over 5.5 times so far this year.

Graphic: China’s BAT tech stocks hit by anti-monopoly drive,

(Reporting by Koh Gui Qing in New York and Marc Jones in London; Additional reporting by Tom Westbrook in Singapore; Editing by Gabriela Baczynska, Will Dunham, William Maclean and Dan Grebler)