GLOBAL MARKETS-Markets mostly flat ahead of Fed decision

Wed Sep 18, 2013 10:40am EDT

* Stock, bonds, FX in tight ranges ahead of Fed stimulus
move
    * Fed expected to taper stimulus in modest steps
    * Any perception of hawkishness to hit shares and bonds,
help dollar
    * Focus on Italy ahead of Berlusconi decision


    By Herbert Lash
    NEW YORK, Sept 18 (Reuters) - The dollar and global equity
markets traded near break-even on Wednesday ahead of what is
expected to be the first step by the Federal Reserve to wean the
world off the super-easy money it has used to treat the last
five years of financial turmoil.
    Expectations are that the Fed's policy-setting Federal Open
Market Committee will trim its $85 billion in monthly
bond-buying in an announcement at 2 p.m. EDT (1800 GMT), while
reassuring investors an actual rise in interest rates is still
distant.
    Reuters polls suggest a $10 billion reduction, but recent
data has led some in the market to expect less.
    The uncertainty kept the dollar pinned near a four-week
trough against a basket of major currencies, idling at
98.92 yen, or 0.22 percent weaker, and hovering near the
week's low against the euro at $1.3348, off 0.07 percent.
    After months of speculation about the Fed's intentions,
investors were cautious, with equity markets mostly flat. A
measure of global equity markets, MSCI's all-country world index
 was up 0.14 percent.
    The Dow Jones industrial average was down 35.71
points, or 0.23 percent, at 15,494.02. The Standard & Poor's 500
Index was down 1.85 points, or 0.11 percent, at 1,702.91.
The Nasdaq Composite Index was up 0.81 points, or 0.02
percent, at 3,746.51. 
    In Europe, the FTSEurofirst 300 of leading regional
shares was up 0.27 percent.
    Currencies were trading in tight ranges as investors were
unwilling to take fresh positions before the Fed statement and a
news conference with Chairman Ben Bernanke a half hour later.
    "From the FX perspective, the start of tapering has already
been discounted," said Ken Dickson, investment director of
currencies for Standard Life Investments, which oversees $271.2
billion in assets, in New York. 
    "There is a risk of volatility if the Fed doesn't taper,"
Dickson added. "It is not a good idea for any central bank to
settle on something and then pull it off course."
    Prices for U.S. Treasuries dipped, with investors reluctant
to take on big bets ahead of the Fed announcement.
    Benchmark 10-year Treasury notes slipped 5/32 in
price to yield 2.8682 percent, erasing gains from Tuesday. 
    European investors had a few distractions to fill the time
before the Fed decision in the shape of minutes from the Bank of
England, which showed there were no longer calls for more
stimulus. 
    Brent crude rose 40 cents to $108.57 a barrel, after
trading as low as $107.41, the lowest settlement price since
Aug. 8. U.S. crude for October delivery rose $1 to
$106.42.
     
    DEVIL IN THE DETAIL
    For the Fed, consensus had congealed around a reduction of
$10 billion-$15 billion a month, with all purchases expected to
end by the middle of next year. Yet even that cautious timetable
would be contingent on the economy performing as well as hoped.
    With such an outcome largely priced in, it could lead
Treasuries and the dollar to rally modestly. A slower tapering
would tend to benefit bonds and stocks but hurt the dollar.
    The bigger reaction would likely come if the Fed pulled back
more aggressively, as that would lead market to price in an
earlier start to rate rises as well.
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