GLOBAL MARKETS-Gold slumps, shares give back some of week's gains

Fri Sep 20, 2013 4:21pm EDT

* Gold prices fall, erasing week's gains; Wall St also ends
lower
    * Euro near 8-month high vs dlr but traders cautious ahead
of German vote


    By Ryan Vlastelica
    NEW YORK, Sept 20 (Reuters) - Gold prices and stocks on
major markets gave back some gains on Friday after soaring this
week in the wake of the Federal Reserve's unexpected decision to
maintain its monetary stimulus.
    The Fed's move had spurred benchmark U.S. stock indexes to
all-time highs on Wednesday, as well as driving up the price of
gold and depressing bond yields, but doubts remain about the
direction of U.S. monetary policy. 
    St. Louis Federal Reserve Bank President James Bullard said
in an interview on Bloomberg TV on Friday that a start to
winding down the stimulus program was possible in October,
depending on upcoming economic data.  
    Gold prices fell 2.8 percent on Friday, erasing the
week's gains, while U.S. crude futures were also sharply weaker.
Currencies were little changed. 
    The Dow Jones industrial average ended down 185.46
points, or 1.19 percent, at 15,451.09. The Standard & Poor's 500
Index closed down 12.43 points, or 0.72 percent, at
1,709.91. The Nasdaq Composite Index finished down 14.66
points, or 0.39 percent, at 3,774.73. The S&P rose 1.3 percent
on the week.
    "We're cautioning our clients to keep their powder dry.
While markets aren't historically overbought and the Fed has
removed some uncertainty, we wouldn't be surprised if we saw
some kind of correction going into October," said Mark Martiak,
senior wealth strategist at Premier Wealth/First Allied
Securities in New York.
    In an encouraging sign for investors, cybersecurity company
FireEye Inc shares surged in their trading debut,
ending 80 percent higher at $36.
    European shares dipped 0.3 percent while the euro
 was holding near an eight-month high after its best week
since July. Investors also looked ahead to German elections on
Sunday.
    MSCI's index of world shares fell 0.6
percent but still notched a third straight week of 2
percent-plus gains. Japanese stocks slipped 0.2 percent.

    U.S. DOLLAR, BONDS HOLD GROUND 
    The U.S. dollar index rose 0.1 percent, holding above
its lows of the week after finding some support on Thursday from
economic data.  
    Analysts at BNP Paribas said they expected the greenback to
"recover quickly versus the lower-yielding currencies in the
G10." Fadi Zaher, head of bonds and currencies at Kleinwort
Benson, said they were also betting on dollar gains.
    Emerging market currencies and stocks were some of the
biggest winners from the Fed move this week after taking a
battering in May and June on prospects of reduced U.S. monetary
stimulus. 
    Indian financial markets were roiled again on Friday,
however, after the Reserve Bank of India unexpectedly raised
interest rates by 25 basis points. 
    The Indian rupee fell 0.7 percent to 62.23 to the
U.S. dollar while Indian shares fell almost 2.0
percent. 
    The benchmark 10-year U.S. Treasury note was up
5/32, with the yield at 2.7337 percent. Benchmark 10-year German
government bonds were also stable at 1.895 percent 
after yields sank to a one-month low of 1.812 percent on
Thursday. 
    The euro and the euro zone shares and higher-yielding bonds
have been supported by recent signs of economic recovery, but
some market players are getting nervous before Sunday's German
election.
    Though Chancellor Angela Merkel is likely to win a third
term, her lead has narrowed in recent polls. A new eurosceptic
party, Alternative for Germany, could make headway in
parliament, which might rattle some investors. 
    "If the party gets 5 to 6 percent of the vote, people will
start gauging the risk of Germany leaving the euro. That would
be negative for the euro zone," said Arihiro Nagata, head of
foreign bond trading at Sumitomo Mitsui Banking Corp.
    Brent crude oil rose 0.5 percent to $108.91 per
barrel, having dropped steeply the previous session on increased
Libyan production and signs of a thawing of diplomatic relations
between Iran and the West. 
    U.S. crude fell 1.6 percent on Friday as expiration
of the contract for October delivery prompted liquidation
selling, traders said.