(Updated prices throughout at 2:59 p.m ET/ 1859 GMT)
By Sinéad Carew and Alun John
NEW YORK/LONDON, Aug 7(Reuters) - Wall Street equity indexes lost ground after opening higher on Wednesday while a bond auction pushed Treasury yields higher and the dollar rose against the yen after cautious central banker comments.
Oil prices rallied after data showed a bigger-than-expected draw in U.S. crude stockpiles, even as worries about weak oil demand in China persisted.
Earlier Bank of Japan Deputy Governor Shinichi Uchida said the central bank will not raise interest rates when financial markets are unstable, pushing the yen down.
But in equities, the Nikkei .N225 rose 1%, adding to Tuesday's 10% rebound from Monday's sell-off. The Nikkei's 12.4% sell-off on Monday started a global stock as investors went into risk-off mode.
After opening higher on Wednesday Wall Street's benchmark S&P 500 started losing ground in the late morning and fell further following a weak auction of U.S. 10-year Treasuries.
While the S&P added 1% on Tuesday, Chad Oviatt, Director of Investment Management at Huntington Private Bank pointed out that it had ended the session well below its peak for the day.
"Today seems to be a continuation of the reactionary forces in the market and we seem to be lacking conviction in that 'buy the dip mentality'," said Oviatt. "It could be that investors are sitting on the sidelines due to market volatility ... you wait for stability before wading back in."
Wednesday's data, however, was upbeat as interest rates for the most popular U.S. home loan plunged last week to their lowest levels in 15 months, after the Federal Reserve said it could start cutting rates in September. And the Mortgage Bankers Association said refinancing applications hit a two-year high.
On Wall Street at 02:59 p.m. the Dow Jones Industrial Average .DJI fell 211.80 points, or 0.54%, to 38,785.86, the S&P 500 .SPX lost 26.89 points, or 0.51%, to 5,213.14 and the Nasdaq Composite .IXIC lost 120.72 points, or 0.74%, to 16,246.14.
MSCI's gauge of stocks across the globe .MIWD00000PUS pared gains and last rose 0.88 points, or 0.11%, to 771.87 after earlier hitting a session high of 783.83. Europe's STOXX 600 .STOXX index had closed up 1.5%.
In currencies, the yen dropped after the BoJ comments on hikes, which soothed investors' concerns about volatility in the Japanese currency, which had soared against the dollar on Monday on fears of a U.S. recession, causing a broader market rout.
Against the Japanese yen JPY= , the dollar strengthened 1.84% to 146.95. The euro EUR= was down 0.09% at $1.092.
The dollar index =USD , which measures the greenback against a basket of currencies including the yen and the euro, gained 0.23% at 103.22.
In U.S. Treasuries, yields were volatile after the Treasury Department's auction of $42 billion in 10-year notes.
The yield on benchmark U.S. 10-year notes US10YT=RR rose 8.2 basis points to 3.97%, from 3.888% late on Tuesday.
The 2-year note US2YT=RR yield, which typically moves in step with interest rate expectations, rose 2.5 basis points to 4.0096%, from 3.985%. The 30-year bond US30YT=RR yield rose 8.4 basis points to 4.2614%.
Oil prices climbed on concerns that an escalating Middle East conflict could hurt oil production, even as worries about weak crude demand persisted.
U.S. crude CLc1 settled up 2.77% at $75.23 a barrel and Brent LCOc1 rose to $78.33 per barrel, up 2.42% on the day.
In precious metals, spot gold XAU= lost steam and was last down 0.16% at $2,385.63 an ounce. U.S. gold futures GCc1 fell 0.04% to $2,388.20 an ounce.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Mortgage refinancing activity on the rise https://reut.rs/3MgVkUd^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> ((To read Reuters Markets and Finance news, click onhttps://www.reuters.com/finance/markets For the state of play of Asian stock markets please click on:
0#.INDEXA ))
