Fear of Fed Policy Change Weighs on Markets

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wall street new york stock exchange trader
Richard Drew/AP
By PAN PYLAS

LONDON -- Worries that the U.S. Federal Reserve will start to reduce the amount of financial assets it buys weighed on markets Wednesday.

And with the month-end hovering, many investors were looking to book profits following another solid performance across the world's stock markets. Many indexes have hit a series of all-time highs during May, including the Dow Jones index, despite a wobble last week.

The latest speculation surrounding the Fed came after a raft of positive economic news on Tuesday. Though investors initially cheered the positive consumer confidence and housing news, they then started to fret over the prospect of the Fed reducing the amount of assets it buys each month -- what is commonly referred to in financial markets as tapering.


The Fed, as with other central banks, has been buying assets over the past few years as part of an attempt to shore up the U.S. economy after the financial crisis. That new money has found its way into financial markets and given a number of assets, such as stocks, a big push.

"Improved investor sentiment following the release of strong U.S. consumer data yesterday has quickly worn off, with European stock indices all trading in the red on Wednesday and U.S. futures pointing to a similar open," said Craig Erlam, market analyst at Alpari.

In Europe, the FTSE 100 index of leading British shares was down 1.2 percent at 6,683 while Germany's DAX fell 1 percent to 8,396. The CAC-40 was also 1 percent lower at 4,012.

Wall Street was poised to give up its Tuesday gains, with Dow futures down 0.3 percent and the broader S&P 500 futures indicating a 0.5 percent retreat. With little U.S. economic news on the calendar, analysts say the session may drift.

"After yesterday's spike in economic data, the calendar is looking a little more subdued for the coming hours, although tomorrow's revised [U.S.] Q1 GDP number has the potential to provide at least one last huzzah before the month-end," said Fawad Razaqzada, market strategist at GFT Markets.

Earlier in Asia, stocks finished modestly higher on the heels of a new record for the Dow, after the Standard & Poor's/Case-Shiller survey found that U.S. home prices rose 10.9 percent in March, the most since April 2006. On top of that, the Conference Board in Washington reported consumer confidence rising to a five-year high.

Japan's Nikkei 225 index rose 0.1 percent to close at 14,326.46 while South Korea's Kospi advanced 0.8 percent to 2,001.20. Benchmarks in mainland China but Hong Kong's Hang Seng tumbled 1.6 percent to 22,554.93.

In the currency markets, the dollar was trading on the soft side following its recent stellar run. The euro was up 0.3 percent higher at $1.2887, while the dollar fell 0.6 percent to 101.68 yen.

Oil prices tracked equities lower, with the benchmark New York rate down 50 cents at $94.51 a barrel.


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