GLOBAL MARKETS-Shares fall as Fed officials talk of QE exit

Fri May 17, 2013 4:15am EDT

* Fed officials urge bank to begin stimulus withdrawal
    * Dollar rises to near 10-month highs
    * European shares edge back from 5-year highs

    By David Brett
    LONDON, May 16 (Reuters) - The dollar held firm near a
10-month high versus a basket of currencies on Friday and
European shares fell after a regional Federal Reserve chief said
the U.S. central bank may begin to taper its asset buying this
summer.
    European shares were down 0.2 percent at 1,242.49,
edging further back from five-year highs and following a retreat
in Asian stocks and Thursday's late fall on Wall Street, but
still on track for a weekly gain. 
    "The stock market is driven by liquidity and sooner or later
this must end," KBC senior economist Koen De Leus said. 
    "In the near-term a correction would be healthy, but on the
whole the market is (still) well supported by the huge amount of
liquidity that is pumped into the system by the central banks." 
    In Asia, MSCI's broadest index of Asia-Pacific shares
outside Japan fell 0.4 percent to 479.33.
    The German Bund future slipped at the open as some investors
 booked profits after this week's gains, but expectations
central bank policies will remain ultra-easy for months limited
losses.
    The Bund future FGBLc1 was 4 ticks lower at 145.27 compared
with 145.31 at Thursday's settlement, while the dollar rose 0.4
percent to 83.944 versus its currency basket, close to
this week's 10-month high of 84.094.
    The Fed's quantitative easing programme has helped stabilise
the world's largest economy and sent investors scrambling for
returns, suppressing bond and cash yields, inflating asset
prices and fuelling a global rally in stocks.
    San Francisco Federal Reserve Bank President John Williams
said on Thursday the Fed could begin easing its monetary
stimulus this summer and end bond buying late this year.
 
    Although Williams does not have a vote in the Fed's
policy-setting panel this year, his comments weighed on U.S.
shares, which have soared to record highs this year, in part
because of  the Fed's purchases of $85 billion a month in bonds.
    A trio of hawkish regional Federal Reserve officials
meanwhile called for the U.S. central bank to stop buying
mortgage-backed bonds, citing a recent improvement in the
housing market. 
    "The Fed realises the impact that (QE) has on markets and
the potential negative impact on risky assets. Therefore they
try to prepare the markets a bit for an eventual end," said BNP
Paribas Fortis Global Markets head of research Philippe Gijsels.