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Stocks end 2022 with a thud; Treasury yields, oil prices rise

Traders work on the floor of the NYSE in New York

By Sinéad Carew and Carolyn Cohn

NEW YORK, LONDON (Reuters) - Wall Street equity indexes finished lower on Friday on 2022's last trading day, while Treasury yields rose along with oil futures as investors braced for the new year with worries about a potential recession and the U.S. Federal Reserve rate hiking path.

In currencies, the dollar, a beneficiary of rising U.S. interest rates, fell on the day but was on track for a 2022 gain of roughly 8%, its biggest annual increase since 2015.

The U.S. U.S. 10-year Treasury yield rose on Friday and closed out the trading year with its biggest annual increase in decades, pushed higher by aggressive Fed rate hikes.

The Fed and central banks around the world have been raising interest rates to fight soaring inflation stemming from supply chain problems related to the COVID-19 pandemic and an energy crisis related to oil producer Russia's Ukraine invasion.

As a result, all three major averages registered their biggest one-year percentage declines since the 2008 financial crisis, with the S&P 500 posting a 19.4% fall for 2022, Nasdaq finishing down 33% and the Dow losing 8.7% for the year.

"There's uncertainty on the fundamentals, what the economy is going to do, what the Fed is going to do, what earnings are going to do. But also is the market going to start off with a sell-off in January?" said James Ragan, Director of Wealth Management Research D.A. Davidson in Seattle.

"There's that fear out there so, portfolio managers and traders are just not wanting to be in a real risk-on position going into the new year. That's what's been happening today and all week."

For Friday, the Dow Jones Industrial Average fell 73.55 points, or 0.22%, to 33,147.25, the S&P 500 lost 9.78 points, or 0.25%, to 3,839.5 and the Nasdaq Composite dropped 11.61 points, or 0.11%, to 10,466.48.

MSCI's world equity index, was down 0.24% for the day, and showed a roughly 20% annual fall, its largest since 2008, when it slid more than 43%.

Along with domestic worries, investors around the world have also been monitoring China, the world's second biggest economy, for signs of weakness.

China's health system has been under stress from soaring COVID cases since it started dismantling strict restrictions this month. Spain and Malaysia on Friday joined countries imposing or considering imposing curbs on travellers from China.

In currencies, the dollar has gained 7.8% over the year, but it was on pace for a loss of 7.7% this quarter for its biggest decline since the third quarter of 2010.

The dollar index fell 0.462%, with the euro up 0.39% to $1.0703 on Friday.

The Japanese yen strengthened 1.36% versus the greenback at 131.21 per dollar, while sterling was last trading at $1.2082, up 0.25% on the day.

In fixed income, benchmark 10-year notes were up 4.4 basis points to 3.879%, from 3.835% late on Thursday.

U.S. crude oil futures registered a second straight annual gain after a wildly volatile year marked by tight supplies due to the Ukraine war and then sliding demand from China, the world's top crude importer.

For the day, U.S. crude settled up 2.4% or $1.86 at $80.26 per barrel and Brent finished at $85.91, up $2.45 or 2.94% on the day. [O/R]

Gold was showing its biggest quarterly gain since June 2020, while the Fed's fast-paced tightening cycle had tempered bullion's progress for the full year.

Spot gold added 0.4% to $1,822.66 an ounce. U.S. gold futures gained 0.15% to $1,819.70 an ounce.

(Reporting by Sinéad Carew, Chuck Mikolajczak, Carolyn Cohn, Ankur Banerjee; Editing by Simon Cameron-Moore, Sam Holmes, Philippa Fletcher, Chizu Nomiyama, Josie Kao and Diane Craft)