Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., June 4, 2025. REUTERS/Brendan McDermid/File Photo
EU flags hang outside the European Central Bank (ECB) headquarters in Frankfurt, Germany, March 6, 2025. REUTERS/Jana Rodenbusch/File Photo

By Stephen Culp

NEW YORK (Reuters) -Wall Street veered to a sharply lower close and crude prices advanced on Thursday as a high-profile dispute between U.S. President Donald Trump and billionaire Elon Musk overshadowed trade talks between Washington and Beijing and a spate of downbeat economic data.

Stocks wavered through much of the session, but turned decisively lower as a falling-out unfolded between Trump and Musk, the billionaire Trump tapped to lead the Department of Government Efficiency (DOGE).

A 14.3% plunge in Tesla shares followed Trump's threats to terminate Musk's government subsidies after Musk criticized Trump's tax and spending bill. Tesla helped pull the Nasdaq down the most, while the S&P 500 and the Dow suffered shallower losses.

"There's a diversity of opinion on whether or not the 'Big, Beautiful Bill' addresses the debt or the deficit at all, or if it goes in the opposite direction," said Thomas Martin, Senior Portfolio Manager at GLOBALT in Atlanta. "This Trump-Musk spat sort of exemplifies that."

Trump held talks with Xi by phone on Thursday in an effort to iron out trade disputes between the world's two largest economies that have buffeted the global economy, and they agreed to further discussions, according to U.S. and Chinese summaries of their call.

"The market seems to be accepting that if they're talking they're not going to do anything drastic, and if they don't do anything drastic, then it's okay to buy stocks now," Thomas added. "People are just sort of guessing and wondering which way the wind is blowing and the wind keeps shifting."

"I think investors want to own stocks and they're afraid of missing out, but they also don't want to own stocks if it's going to be a disaster," Martin added.

Economic data showed initial jobless claims hit the highest level since October, while a 16.3% drop in imports - arising from Trump's erratic tariff policy - resulted in the narrowest U.S. trade gap since November 2023.

Weaker-than-expected labor market data, including a 47% year-on-year jump in Challenger layoffs and a significant downside surprise in ADP's private payrolls, are dampening expectations for the Labor Department's closely watched May employment report expected on Friday.

But Matthew Keator, managing partner in the Keator Group in Lenox, Massachusetts believes the softer data could open the door for the Federal Reserve to implement more than one rate cut before the end of the year.

"With some of the more benign inflation numbers that have come through recently and a potential pick-up in jobless claims might give the Fed a little bit more cause to (cut interest rates) at least maybe more than once this year," Keator said.

"That could be an encouraging sign, particularly for some sectors."

The Dow Jones Industrial Average fell 108.00 points, or 0.25%, to 42,319.74, the S&P 500 fell 31.48 points, or 0.53%, to 5,939.33 and the Nasdaq Composite fell 162.04 points, or 0.83%, to 19,298.45.

ECB CUTS RATES

As widely expected, the European Central Bank lowered its three key interest rates by 25 basis points, a decision based on its updated economic outlook now that inflation is currently around the central bank's 2% target.

Even so, European shares pared earlier gains to close only slightly in positive territory after ECB President Christine Lagarde appeared to float the possibility of a summer pause in its year-long easing cycle.

MSCI's gauge of stocks across the globe fell 2.47 points, or 0.28%, to 886.46.

The pan-European STOXX 600 index rose 0.16%, while Europe's broad FTSEurofirst 300 index rose 4.07 points, or 0.19%

Emerging market stocks rose 9.94 points, or 0.85%, to 1,182.39. MSCI's broadest index of Asia-Pacific shares outside Japan closed higher by 0.81%, to 622.86, while Japan's Nikkei fell 192.96 points, or 0.51%, to 37,554.49.

The dollar erased earlier gains in the wake of the soft U.S. economic indicators and Lagarde's hints at an ECB rate pause.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.01% to 98.80, with the euro up 0.18% at $1.1437.

Against the Japanese yen, the dollar strengthened 0.68% to 143.73.

U.S. Treasury yields gained ground as trade deal hopes outweighed soft economic data.

The yield on benchmark U.S. 10-year notes rose 3.5 basis points to 4.4%, from 4.365% late on Wednesday.

The 30-year bond yield was flat at 4.8877% from 4.888% late on Wednesday.

The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose 5.6 basis points to 3.933%, from 3.877% late on Wednesday.

Crude oil prices rose after reports of the Trump/Xi call, which helped investors look past the U.S. stockpile buildup and Saudi Arabia's July price cuts for Asia.

U.S. crude rose 0.83% to settle at $63.37 per barrel, while Brent settled at $65.34 per barrel, up 0.74% on the day.

Gold prices reversed an earlier gain after the Trump-Xi call hinted at a thaw in trade relations between Washington and Beijing.

Spot gold fell 0.56% to $3,356.41 an ounce. U.S. gold futures fell 0.48% to $3,357.30 an ounce.

(Reporting by Stephen Culp; additional reporting by Marc Jones in London; editing by Mark Heinrich and Sandra Maler)