By Michael Connor
NEW YORK (Reuters) - The dollar fell and benchmark U.S. Treasury yields touched multi-week lows on Friday as an unexpectedly weak government reading of American labor costs dulled prospects for higher U.S. interest rates.
Wall Street stock prices rose, also taking a cue from the Employment Cost Index data showing the smallest quarterly increase in 33 years. Oil prices declined for a second day on growing worries about global oversupply.
The dollar index declined 0.6 percent, with the basket of major currencies heavily weighed down by a 0.7 percent jump in the euro to $1.1005. The index, which has been rising steadily, had earlier touched a near one-week high.
Treasuries prices rallied, with yields on benchmark 10-year Treasury notes falling to a three-week low of 2.193 percent and was last yielding 2.2051 percent on a price rise of 17/32 of a point.
The 30-year Treasury bond yield fell to a fresh two-month low of 2.9040 percent from 2.9390 percent prior to the data. The price was last up 22/32 of a point to yield 2.9178 percent.
The Employment Cost Index, the broadest measure of labor costs, rose just 0.2 percent last quarter, the U.S. Labor Department reported. Economists had forecast a 0.6 percent rise in the report, which follows a GDP report widely seen as allowing the Federal Reserve to hike rates beginning as early as September.
"The magnitude of the miss was definitely a bit of a surprise, especially as people were really gearing up for a September (rate) hike. This definitely puts a lower probability on that," said Stanley Sun, interest rate strategist at Nomura Securities International in New York.
Wall Street's Dow Jones industrial average was off 2.67 points, or 0.02 percent, to 17,743.31, while the S&P 500 was up 2.09 points, or 0.1 percent, to 2,110.72 and the Nasdaq Composite climbed 16.06 points, or 0.31 percent, to 5,144.84.
European shares edged up 0.1 percent on merger hopes and good earnings and finished July with a 4-percent monthly rise as worries receded about Greece's membership in the euro area.
China's CSI300 index ended flat after a late dip to leave it down 14.7 percent on the month. The Shanghai Composite Index lost 1 percent, extending its July losses to 13.4 percent despite recent support measures by the country's authorities.
China's securities regulator said Friday it was investigating the impact of automated trading on the market and had clamped down on 24 trading accounts found to have abnormal bids for shares or bid cancellations.
Crude oil also slipped for a second session as concern over global oversupply intensified after the head of the OPEC oil exporters' cartel indicated there would be no cutback in production.
Brent crude oil was down $1.05 at $52.28 a barrel. U.S. light crude was down $1.14 at $47.36 a barrel
(Additional Reporting By Daniel Bases in New York; Editing by Nick Zieminski)