U.S. stocks drop on lower odds for a Fed rate cut

Asian markets hit as US jobs data dent hopes for big rate cut

European shares consolidated within narrow ranges as hopes of an interest-rate cut this month by the U.S. Federal Reserve were tempered by last week's strong U.S.jobs data.

That being said, later on the market got a bit of relief due to Jerome Powell suggesting that the Federal Reserve was also going to do whatever it takes to keep the economy going, and other words keeping interest rates low.

Deutsche Bank's news helped limit the downbeat sentiment in broader Europe, with the pan-European STOXX 600 index adding 0.07%.

Traders' focus quickly shifted to Federal Reserve Chairman Jerome Powell's Congressional testimony, due on Wednesday and Thursday, as well as USA inflation data out later this week. USA stocks hit a record last week and a bond rally took yields to multi-year lows amid expectations the Fed will lower interest rates by at least a quarter percentage point at its July meeting, though fed fund futures showed traders trimming the amount of easing they expect.

The US dollar index climbed to as high as 97.443 on Friday, its highest level since June 19, as US Treasury yields rose across the board.

The euro, which dropped to $1.1208 EUR=EBS on Friday, traded at $1.1225, unchanged on the day. The Federal Open Market Committee at the end of July will discuss whether the economy needs an "insurance cut" amid a slowing global economy, trade frictions and low inflation.

"So far U.S. -Iran tensions have not had a material impact on markets, but if tensions escalate it could be a different story", said NAB's Catril. U.S. West Texas Intermediate (WTI) CLc1 was up 6 cents at $57.57 a barrel. -China trade war is expanding worries over global economic growth and curbing the demand outlook for oil. Worldwide benchmark Brent crude was trading 0.2 percent lower at $64.31 per barrel by 1013 GMT, having hit a low of $62.06 on Wednesday, its lowest since June 19.

"Some naive market participants might still hope that the new central bank governor will come across as being independent in a statement announced for this week and at least does not cut interest rates right away", Commerzbank analysts said.

Spot gold XAU= gained 0.4% to $1,405.77 an ounce.

The U.S. dollar held near three-week highs ahead of Fed Chair Powell's mid-week testimony before Congress on monetary policy and the state of the U.S. economy as investors look for clarity on the central bank's policy plans for the coming months. Australia's ASX 200 declined 1.17 percent.

Stocks slumped on Monday after a stellar U.S. jobs report weighed on traders' hopes of a cut to interest rates this month.

Yields on two-year U.S. Treasuries previously jumped to 1.87% from 1.76%, reflecting reduced odds of the Fed aggressively reducing borrowing costs in the near term. The yield on Australia's benchmark 10-year note, which moves inversely to its price, rose almost 4 basis points to 1.325 percent, the yield on the long-term 30-year bond also climbed 4 basis points to 1.972 percent and the yield on short-term 2-year traded about 4 basis points higher at 0.976 percent.

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