GLOBAL MARKETS-Shares drop, dollar slumps as rout gathers pace

Thu Jun 13, 2013 8:47am EDT

* Nikkei tumbles more than 6 pct, European shares fall 1 pct
    * Market falls begin to level off ahead of Wall Street open
    * Dollar slides to 10-week low vs yen, 3-1/2 month trough vs
euro
    * Persistent Fed stimulus doubts stirs liquidations by funds

    By Marc Jones
    LONDON, June 13 (Reuters) - World shares fell and the dollar
slumped on Thursday as a sell-off on global financial markets
accelerated on concerns over whether central banks will continue
the stimulus they have come to rely on.
    Stocks, bonds, commodities and the dollar were all caught in
the selling. There were tentative signs markets were levelling
off ahead of U.S. trading, although Wall Street was also
expected to open in the red.  
    The slide has been triggered by comments from policymakers
at the U.S. Federal Reserve, which meets next Tuesday and
Wednesday, about when to start scaling back its huge bond-buying
programme. 
    European shares were down 1 percent ahead of the
U.S. restart, after Japan's Nikkei fell 6.4 percent -
its second-biggest daily drop in more than two years - rattling
markets and leaving Asian shares at their lowest level in 2013.
  
    Heavy selling hit the dollar, which slumped as much as 2
percent against the yen as investors spooked by Japan's
stock dive unwound bets the yen would weaken. It fell as low as
93.90 yen, its lowest since April 4, giving back almost all the
gains made since the Bank of Japan's aggressive monetary easing
announced on that day.
    "If you look at it historically, there has never been a
period when the Fed has started to take back stimulus that has
left the markets untouched," said Hans Peterson, global head of
investment strategy at Swedish bank SEB.
    "And this time it is a bigger exercise. We have moved
markets from 2009 to 2013 on stimulus and now we are trying to
take a step into a world which is more driven by natural growth.
That transition will not be easy."
   
 
    TOKYO TANKS 
    Emerging market assets have been particularly hit over the
last few weeks as the uncertainty about central bank stimulus
has driven a global dash back to cash and core economies.
    They were hit again as the European afternoon session
continued. Emerging equities fell to 11-month lows and
most emerging currencies remained under heavy pressure with the
Indian rupee falling to a record low.    
    In the debt market, German government bonds saw
their biggest gains in a week and U.S. treasuries 
made ground as investors headed for traditional safe-haven
paper.
    The recent selling of euro zone periphery debt also resumed
, and Italy saw its borrowing costs rise at an
auction of three-year debt although yields at a parallel 15-year
sale were little changed. 
    The rout in Asian markets saw many of them plummet to
multi-month lows as investors scrambled to recalibrate positions
for a world with potentially reduced liquidity support.
    Both the dollar/yen and the Nikkei fell below the Ichimoku
cloud bottom for the first time since their rallies began in
November, sending a strong bear market signal.
    The 6.4 percent fall in Tokyo's Nikkei also breached its 50
percent retracement from its November rise and brought its
losses over the last two weeks or so to more than 20 percent.
    
    TRICKY TRANSITION
    Among U.S. economic reports due later will be retail sales,
import prices, business inventories and weekly jobless claims,
all likely to feed into calculations of when the Fed will start
phasing out its support ahead of its meeting next week. 
    "The trend is still in principle a sell-off in markets, a
sell-off in riskier assets on the expectations that the Fed
might signal further readiness to maybe slow down the rate of
purchases," said Daiwa Securities economist Tobias Blattner. 
    "So all eyes are on the FOMC meeting next week. There is
very little else that matters at the moment"    
    With U.S. stocks looking set for early falls, the dollar
remained near to a 3-1/2 month low against the euro as a
slight rebound by the greenback against a basket of major
currencies left the common currency buying $1.3320.    
    Gold was also pinned back by Fed stimulus caution.
But with oil bang in the middle of its recent $100-105
range and copper only slightly lower, commodity markets
were largely spared the drama unfolding elsewhere.
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