Stocks and Treasuries calm after Fed indictment jitters, dollar weakens

By Isla Binnie

Jan 12 (Reuters) - Wall Street stock indexes and U.S. government bonds steadied on Monday as traders digested the Trump administration's threat to indict the Federal Reserve, although renewed questions about the independence of the world's most influential central bank weighed on the dollar and boosted gold.

Fed chair Jerome Powell delivered an unusually full-throated rejection of the Department of Justice's service of grand jury subpoenas, adding to what Morgan Stanley analysts called a "cacophony of market-moving events" to start what is only the second full week ?of 2026.

Trump's statement that he was considering military action after a crackdown on protests in Iran added further potential tension following the capture of Venezuela's Nicolas Maduro and suggestion the U.S. could try to acquire ?Greenland.

The benchmark S&P 500 and blue-chip Dow Jones Industrial average inched up 0.16% and 0.17% respectively to record closing highs of 6,977.27 and 49,590.20.

The ?Nasdaq Composite rose 0.26% on the day, buoyed by retail giant Walmart, which moved its listing there last ?month.

The yield on benchmark U.S. 10-year ?notes rose 1.8 basis points to 4.189%, having touched 4.207% during the session.

"Any time you have a new angle on something, the market reads it, trades on it a little bit, it has ?to digest it, and then it realizes this is just new news that's ?consistent with prior events that have come out," said Jim Barnes, director of fixed income at Bryn Mawr Trust in Berwyn, Pennsylvania.

"It feels as if the Fed is a tough institution to break, and so this is going to keep going ?on, though it's not going to go away, the persistencies will probably be ?there and the ?market is just going to have to take it in stride."

The dollar felt some pain, with the index that measures the greenback against a basket of major currencies, falling 0.34% to 98.90, with the euro up 0.25% at $1.1666.

"This just ended the dollar's New Year bounce," ?said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York. "The subpoenas have probably overwhelmed the geopolitics."

Gold hit a record high above $4,600 an ounce during the session but retreated to last be seen 1.84% higher at $4,592.55.

Oil prices settled at seven-week highs on concerns about disruption in Iran, which outweighed prospects for more supply from Venezuela, whose oil exports have long been bound by sanctions. [O/R]?

Brent futures rose 53 cents, or 0.8%, to settle at $63.87 a barrel. U.S. crude rose 38 cents, or 0.6%, to settle at $59.50. It was Brent's highest settlement since Nov. 18 and WTI's highest since Dec. 5.

CREDIT CARD ?RATE CAP RATTLES ?INVESTORS

Stock in lenders and credit card firms fell harder than other sectors, after Trump's call on Friday for a one-year cap on credit card interest rates at 10% starting on Jan. 20.

Citigroup tumbled. Credit-card firm American Express also fell, as did consumer finance firms, ?including Capital One. [.N]

"Based on very preliminary calculations, Citi would have the highest hit and next US Bancorp," JPMorgan analysts said in a note, explaining that US Bancorp "has credit card loans with higher rates, implying that it has more subprime customers."?

Closely watched developments to come this week include U.S. inflation data, trade figures from China and a slew of U.S. earnings beginning with JPMorgan and BNY on Tuesday.

Markets will continue to weigh the dramatic escalation in the fight between Powell and Trump, which dates back to the banker's first years as chair in 2018.

"Trump is pulling at the loose threads of central bank independence," said Andrew Lilley, chief rates strategist at Barrenjoey, an investment bank ?based in Sydney.

"Investors won't be happy about it, but it shows actually Trump has no other levers to pull. The cash rate will stay what the majority of the FOMC wants them to be."

Deutsche Bank analysts totted up the various factors markets will have to weigh. "Remarkable stuff and, all in all, plenty of opportunities for big headlines over the coming days," they said in ?a note.

(Additional reporting by Karen Brettell, Scott DiSavino, Medha Singh, Pranav Kashyap, Tom Westbrook and Ankur Banerjee; Editing by Alexander Smith, Chizu Nomiyama and Andrea Ricci)