The Dow erases more than 300-point gain after Trump threatens government shutdown

Stocks surrendered gains Tuesday after President Donald Trump threatened to shut down parts of the federal government over funding for his proposed border wall, slowing an earlier rally fuelled by the prospect of thawing trade tensions.

The Dow Jones Industrial Average, which had jumped as many as 300 points at highs, turned negative to close down 0.21% after Trump sparred with top Democrats and said he was “proud to shut down the government for border security” in a televised Oval Office meeting.

The S&P 500 also ended slightly lower, while the Nasdaq Composite pared sharp gains and settled up 0.16%. Concerns about slower economic growth, heightened political risk, and ongoing trade tensions have continued to rattle markets this month, with the S&P 500 last week posting its largest weekly decline since March.

“Recent volatility may have provided one of the most important ingredients of a stock market bottom: fear,” John Lynch, chief investment strategist for brokerage firm LPL Financial, said in an email Tuesday.

Markets had earlier rallied on optimism for US-China trade negotiations, which Trump said on Twitter were “very productive.” Beijing agreed to lower duties on cars during a phone call with American officials, the Wall Street Journal reported. Automaker shares including General Motors (+0.7%) and Ford (+0.3%) rose following the news.

Concerns about political chaos in the UK lingered after Prime Minister Theresa May delayed a key Brexit vote scheduled for Tuesday, casting uncertainty on her plans to leave the European Union.

“As the week progresses markets will be keeping a very close eye on whether May has the ability to renegotiate with Brussels in a bid to save the deal, if she will end up facing a leadership challenge, or the possibility of a second Brexit referendum,” said Lukman Otunuga, an analyst aat FXTM.

Elsewhere, the Labour Department said early Tuesday that the producer-price index, an inflation gauge, rose unexpectedly for a third straight month. The Federal Reserve is expected to increase its benchmark interest rate at a policy meeting next week.

The dollar gained following the inflation data, climbing 0.2% against a basket of peers. Treasury yields were also higher, with the 10-year at 2.875% and the 2-year at 2.768%.

Oil prices climbed as outages in Libya added to supply concerns. Last week, OPEC and other major producers agreed to cut production levels to support prices. West Texas Intermediate gained more than 1.4% to $US51.72 per barrel, and Brent rose 0.5% to $US60.

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