NEW YORK, July 17 — A gauge of global equities lost ground yesterday and US Treasury yields moved higher as a stronger-than-anticipated report on retail sales raised the possibility the Federal Reserve could adopt a less dovish stance.

US retail sales rose 0.4 per cent in June, as households stepped up purchases of motor vehicles and a variety of other goods. The solid number comes on the heels of recent data showing a strong labour market and a pickup in consumer prices.

While the Fed is still largely expected to cut rates by a quarter of a percentage point at its July 30-31 policy meeting, expectations for a more aggressive half a percentage point cut have been scaled back.

"The market is addicted to easy money, it is a sugar high, it is a very quick high,” said Ben Phillips, chief investment officer at Eventshares in Newport Beach, California.

"So when someone is going to take away your supply, you’re going to get angry, go into withdrawal.”

Other data showed manufacturing output in the United States picked up steam in June, while import prices declined the most in six months.

The data boosted US Treasury yields, while the improving economic picture has seen the US yield curve steepen in the past week.

The Dow Jones Industrial Average fell 23.53 points, or 0.09 per cent, to 27,335.63, the S&P 500 lost 10.25 points, or 0.34 per cent, to 3,004.05 and the Nasdaq Composite dropped 35.39 points, or 0.43 per cent, to 8,222.80.

With earnings season underway, banking shares were in focus after a mixed bag of results from JPMorgan, Goldman Sachs and Wells Fargo. The S&P banks sector was off 0.5 per cent.

Stocks also moved lower following comments from U.S. President Donald Trump that the US still has "a long way to go” to conclude a trade deal with China, and could impose tariffs on an additional US$325 billion (RM1.33 trillion) in Chinese goods.

Benchmark 10-year notes last fell 7/32 in price to yield 2.1148 per cent, compared with 2.092 per cent late on Monday.

European equities rose as disappointing data out of Germany and new concerns over Brexit helped boost expectations for stimulus from the European Central Bank, along with strong gains from shares of British fashion brand Burberry.

Germany's ZEW indicator showed that the mood among investors in Europe's largest economy deteriorated more than expected in July, with the survey pointing to the unresolved China-US trade dispute and to political tensions with Iran.

The pan-European Stoxx 600 index rose 0.35 per cent and MSCI's gauge of stocks across the globe shed 0.27 per cent. The decline snapped a four-day winning streak for MSCI's index.

The US dollar strengthened versus the euro as a result of the disparate data while a debate between the two candidates to become Britain's next prime minister sent the pound tumbling because of heightened worries about a no-deal Brexit.

The US dollar index rose 0.45 per cent, with the euro down 0.42 per cent to US$1.121. Sterling was last trading at US$1.2407, down 0.87 per cent on the day. — Reuters