NEW YORK, Jan 13 (Reuters) - A measure of world stock markets reversed early gains to trade slightly lower on Monday, weighed by a decline in U.S. stocks, while the dollar and bond yields fell as last week's surprisingly weak U.S. jobs data strengthened the case for the Federal Reserve to keep interest rates low for longer.
U.S. Treasuries prices edged up, after the benchmark 10-year note yield registered its largest one-day fall since October on Friday. The dollar dropped to its lowest level in four weeks against the yen.
Wall Street kicked off a week full of corporate earnings reports on a cautious note on growing concerns that stocks may have become expensive, with the benchmark S&P 500 at its highest level in nearly seven years. The index surged almost 30 percent in 2013.
"People are sitting on their hands, waiting for major results to figure out how strong this season may be," said Douglas DePietro, managing director at Evercore Partners in New York.
Investors will keep an eye on fourth-quarter earnings, with major U.S. banks, including JPMorgan, Citigroup and Goldman Sachs, announcing results this week. European earnings will gather pace in the last week of the month.
According to Thomson Reuters data, fourth-quarter profits are expected to grow 7.3 percent over the year-ago period. However, the 9.8 ratio of negative guidance to positive outlooks is currently the largest on record.
U.S. stocks fell in early afternoon trading. The Dow Jones industrial average was down 116.53 points, or 0.71 percent, at 16,320.52. The Standard & Poor's 500 Index was down 13.97 points, or 0.76 percent, at 1,828.40. The Nasdaq Composite Index was down 28.27 points, or 0.68 percent, at 4,146.40.
U.S. equity gains have largely come on accommodative monetary policies by the Federal Reserve.
Friday's data showed the U.S. economy posted the weakest monthly job growth in three years in December. This triggered a slide in U.S. Treasury yields.
The report did not change expectations that the Fed would wind down its bond-buying program by the end of the year, but interest rate futures markets pushed back the timing of the first rate hike toward late 2015 from mid-2015 .
Equities in emerging markets rallied as investment funds moved back to riskier assets.
In Europe, banking shares rallied after regulators agreed to soften new leverage ratios for banks. The STOXX bank index rose 1.5 percent, extending its gains this year to almost 6 percent.
"The fact that the ratios have been eased means that some of the forecasts for bank profitability in 2014 can probably be revised up slightly and people are just feeling slightly more optimistic about the sector," said Matt Basi, head of sales trading at CMC Markets.
MSCI's world equity index was down 0.1 percent while emerging stocks were up 0.6 percent.
The FTSEurofirst 300 index of top European shares rose 0.3 percent to 1,324.42, while the euro zone's blue-chip Euro STOXX 50 index was up 0.3 percent at 3,111.94, both just a few points below five-year highs hit recently.
Benchmark 10-year euro zone bond yields were slightly lower on the day while Bund futures prices rose 19 ticks. Italian bond yields fell to 3.9 percent, near an eight-month low hit last week.
The benchmark 10-year U.S. Treasury note was up 9/32, its yield at 2.8266 percent.
The dollar dropped to its lowest level in four weeks against the yen. The dollar slid nearly 1 percent against the yen to 103.13 yen, after earlier falling to 102.97, its lowest level since Dec. 18.
The greenback was flat against a basket of six major currencies.
In commodity markets, Brent oil fell slightly below $107 a barrel as the market absorbed news of a deal between Western nations and Iran to curb its nuclear program and the resumption of production from a key North Sea oilfield.
U.S. oil fell more than $1, then pared some losses, though it was pressured by poor the U.S. jobs data that suggested an economic recovery in the world's largest oil consumer may be faltering.
Brent crude for February delivery was off 33 cents to $106.92 per barrel while U.S. crude fell 87 cents to $91.85 per barrel.