GLOBAL MARKETS-Shares, oil slip on Fed stimulus nerves

Fri Jan 4, 2013 12:33pm GMT

Related Topics

* MSCI world share index down 0.2 pct, European shares dip
    * Dollar hits highest since July 2010 vs yen
    * Firmer dollar hits precious metals, oil

    By Richard Hubbard and Marc Jones
    LONDON, Jan 4 (Reuters) - World shares edged lower and the
dollar rose before U.S. jobs data on Friday which investors will
watch more intensely than usual after the Federal Reserve linked
future stimulus to  labour market performance.
    Minutes from the Federal Reserve's December policy meeting
unsettled financial markets on Thursday by revealing some
policymakers already want to slow or stop asset purchases before
the end of 2013 due to worries about financial stability. 
    Fed bond-buying has underpinned appetite for riskier assets 
across the markets so a strong jobs number may boost chances the
central bank could halt its purchases sooner than many had
expected. 
    "After the minutes, markets perhaps expect the Fed to reduce
its bond purchases or shorten the time it will continue such
purchases," said Richard Falkenhall, FX strategist at SEB.
    Wall Street was likely to open slightly higher, with S&P 500
 futures up 0.1 percent and contracts for the Dow Jones
 and the Nasdaq 100 up 0.2 percent, but much will
depend on the non-farm payrolls report due at 1330 GMT.
    Analysts polled by Reuters expect a 150,000 rise in jobs,
with unemployment holding steady at 7.7 percent. However, after
a better-than-expected ADP employment report on Thursday, many
may now be betting on an above-consensus jobs number.
    "The Fed has made it clear that it will keep policy loose
until unemployment drops to 6.5 percent or below, so strong jobs
data will undoubtedly raise expectations of a more hawkish Fed,"
analysts at Tradition brokerage said in a note. 
    European shares echoed their Asian peers to edge lower. But
following a sharp jump on Wednesday after the United States
edged back from the "fiscal cliff" budget crisis, they were on
track for weekly gains of almost 2.7 percent.
    Tentative signs that the euro zone economy may have passed
the worst of its downturn also helped to restrict the moves. 
    Markit's Eurozone Composite PMI, which gauges business
activity across thousands of the region's companies, rose in
December to 47.2 from 46.5 in November - below the 50 line which
divides growth from contraction but at its highest level since
March last year. 
    "The surveys at least bring some substance to the belief
that the worst is over and that a return to growth is in sight
for the region in 2013," said Chris Williamson, chief economist
at Markit.
    London's FTSE 100, Paris's CAC-40 and
Frankfurt's DAX were flat to down 0.4 percent, while
the MSCI index of world shares was just over 0.2
percent lower at 345.85.
    
   
   
    CORE WEAKNESS
    The Fed's concerns about the longer-term impact of its
policies gave fresh momentum to the recent slide by low-risk
bonds including U.S and German debt.
    Bund futures slipped over half a point to 142.72, having
already fallen steeply from last week's close of 145.64.
    Benchmark U.S. Treasury yields continued their
climb, hitting an eight-month high of 1.95 percent, while in
Asia, 10-year Japanese government bond yields touched a
3-1/2-month high of 0.83 percent.    
    In the currency market, the dollar hit its highest level in
nearly 2-1/2 years against the Japanese yen at 88.34 yen,
up 1.2 percent on the day. The euro fell to a three-week low of
$1.3006. The dollar also touched a six-week high
against a basket of currencies.
    "We have seen quite a broad-based dollar rally after the
minutes which has ignited a fresh debate about how much
liquidity the Fed is going to pump into the economy," said
Daragh Maher, FX strategist at HSBC.
    The yen has fallen in recent weeks as investors bet the new
government will push the Bank of Japan to weaken the currency by
implementing aggressive economic stimulus.
    The dollar's recent climb makes dollar-based assets more
expensive for non-dollar investors and this hit precious metals
and oil. 
    Brent crude shed $1.43 to $110.71 a barrel while U.S.
crude was down $1.12 at $91.80.
    The fresh focus on when the Fed may end its so called
quantitative easing (QE) programme of asset purchases sent gold
down 2 percent to a 4-1/2 month of $1,629.59 an ounce.
    "The market had been too preoccupied with the sheer size of
the quantitative easing programme, and had not seen that at some
point you would need a phase out of QE policy," Christin Tuxen,
an analyst with Danske Bank, said.  
    Among other precious metals, silver was down 3
percent to $29.24 an ounce, having also slipped to a 4-1/2 month
low at $29.21 in earlier trade.
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