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U.S. stocks fall as Tesla drags

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U.S. yields ease but 10-year Treasury still above 4.5%

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Dollar continues recent strength, hits 2-year high

(Updates with close of European markets)

By Chuck Mikolajczak

NEW YORK, Jan 2 (Reuters) - Global stocks fell on

Thursday as early gains fizzled, continuing the year-end

downdraft into the first trading day of the new year, while the

dollar hit a two-year high after economic data indicated the

U.S. labor market remained on solid footing.

On Wall Street, U.S. stocks were broadly lower after initial

gains, with the S&P 500 on track for its fifth straight daily

decline, its longest skid since April.

The U.S. Labor Department reported that the number of

Americans filing new applications for unemployment benefits

dropped to an eight-month low of 211,000 last week, below the

222,000 estimate of economists polled by Reuters.

"The labor market has been incredibly resilient and we've

seen that continue," said Keith Buchanan, senior portfolio

manager at GLOBALT Investments in Atlanta. "Overall, the labor

market is really what's fueled the consumer, which has held this

economy together for the last three years of this fight we've

had with inflation."

Wall Street declines were led by the consumer discretionary

sector, which was dragged lower by a roughly 6% fall

in Tesla after the electric vehicle maker reported its

first decline in annual deliveries.

The Dow Jones Industrial Average fell 269.84 points,

or 0.63%, to 42,274.38, the S&P 500 fell 34.79 points, or

0.59%, to 5,846.67, and the Nasdaq Composite fell 120.55

points, or 0.63%, to 19,188.71.

European stocks closed higher after a sluggish start to the

session, buoyed by a jump in energy names.

MSCI's gauge of stocks across the globe

lost 4.08 points, or 0.48%, to 837.34. Europe's STOXX 600

index gained 0.6%.

The dollar jumped to a two-year high on Thursday, building

on the strong gains from 2024 as expectations remained intact

that economic growth in the U.S. will outpace that of its peers,

keeping the Federal Reserve on a slower interest rate-cut path.

The dollar index, which measures the greenback

against a basket of currencies including the yen and the euro,

rose 0.77% to 109.37, after climbing to 109.54, its highest

since Nov. 10, 2022.

"In terms of 2025 economic growth, there's no rival to the

dollar," Adam Button, chief currency analyst at ForexLive in

Toronto, said.

"Capital flows dominate the turn of the year and the U.S.

stock market has really put to shame every other global market,"

Button said. "The dollar is the only game in town until there is

a genuine stumble in the U.S. economy."

The euro was down 1.01% at $1.025 after slumping to

$1.0223, its lowest level since Nov. 21, 2022.

Against the Japanese yen, the dollar strengthened

0.44% to 157.56. Sterling dropped 1.23% to $1.2363 and

was on pace for its biggest daily percentage drop since Nov. 6.

Stocks had stumbled heading into the end of the year,

denting a year-long rally fueled by growth expectations

surrounding artificial intelligence, anticipated rate cuts from

the Federal Reserve, and more recently, the likelihood of

deregulation policies from the incoming Trump administration.

However, the recent economic forecast from the Fed, along

with worries that President-elect Donald Trump's policies such

as tariffs may prove to be inflationary, has sent yields higher

and created a stumbling block for equities.

The yield on benchmark U.S. 10-year notes edged

down 0.6 basis point to 4.571%, but remained above the 4.5% mark

that analysts see as a problematic level for stocks.

Oil prices advanced, with U.S. crude up 1.94% to

$73.10 a barrel and Brent climbing to $75.88 per barrel,

up 1.67%, on optimism over China's economy and fuel demand after

a pledge by President Xi Jinping to promote growth.