Investors are hoping the Federal Reserve slashes interest rates by 50 basis points at its next policy meeting at the end of the month (KAREN BLEIER)

New York (AFP) – Oil prices rallied and US stocks tumbled Friday following news of a tanker attack in the Middle East as investors considered the size of an expected Federal Reserve interest rate cut later this month.

Wall Street stocks had been in positive territory through early afternoon, but fell decisively after Iran’s Revolutionary Guards announced they had confiscated a British tanker in the strategic Strait of Hormuz — a move that prompted swift criticism from the United States and Britain.

Oil prices also rallied on the latest escalation of tensions in Iran, lifting petroleum-linked equities in the US.

“Perhaps this will be the action that forces all parties to de-escalate the situation and come to the negotiating table,” said a note from BMO Capital Markets. 

“As it stands, it appears two British flagged tankers have been seized and the weekend news wires will be watched closely ahead of Monday’s open.”

In New York, the broad-based S&P 500 lost 0.6 percent, while the Dow ended down 0.3 percent, lifted in part by Boeing.

The aerospace giant saw its share price surge 4.5 percent despite announcing some $6.6 billion in new costs tied to the worldwide grounding of the 737 MAX planes.

Analysts said while costs were higher than expected, Boeing reassured investors in some respects, including its decision not to further cut production of the MAX.

Earlier, European markets finished mixed.

– Big rate cut ahead? –

US stocks rallied Thursday following remarks from New York Federal Reserve Bank President John Williams who said central banks should “act quickly” and not shy from a “dramatic series of rate cuts” to address economic weakness.

The comments were interpreted as endorsing an interest rate cut later this month, possibly a larger 50-basis point cut.

But the New York Fed clarified that the speech concerned decades of research and was not about what the central bank may decide at its next policy meeting July 30-31.

US President Donald Trump joined the fray, again flogging the Fed on Twitter for raising rates, and demanding an immediate interest rate cut. 

Later Friday, a Wall Street Journal report saying the Fed is targeting a 25-basis point interest rate cut — rather than a larger move some were hoping for — helped push US stocks lower, analysts said. 

The dollar also advanced against the euro and other currencies as the already-low prospects for the bigger Fed interest rate cut dimmed further.

– Key figures around 2050 GMT –

New York – Dow: DOWN 0.3 percent at 27,154.20 (close)

New York – S&P 500: DOWN 0.6 percent at 2,976.61 (close)

New York – Nasdaq: DOWN 0.7 percent at 8,146.49 (close) 

London – FTSE 100: UP 0.2 percent at 7,508.70 (close)

Frankfurt – DAX 30: UP 0.3 percent at 12,260.07 (close)

Paris – CAC 40: FLAT at 5,552.34 (close)

EURO STOXX 50: DOWN 0.1 percent at 3,480.18 (close)

Tokyo – Nikkei 225: UP 2.0 percent at 21,466.99 (close)

Hong Kong – Hang Seng: UP 1.1 percent at 28,765.40 (close)

Shanghai – Composite: UP 0.8 percent at 2,924.20 (close)

Euro/dollar: DOWN at $1.1216 from $1.1277 at 2100 GMT

Pound/dollar: DOWN at $1.2497 from $1.2549

Dollar/yen: UP at 107.72 yen from 107.30 yen

Brent North Sea crude: UP 0.9 percent at $62.47 per barrel

West Texas Intermediate: UP 0.6 percent at $55.63 per barrel

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Disclaimer: Validity of the above story is for 7 Days from original date of publishing. Source: AFP.