GLOBAL MARKETS-Fed tapering unease, ECB rate talk rattle investors

Thu Nov 21, 2013 8:50am EST

* Euro rises as ECB plays down risk of deposit rate cut

* Fed minutes revive prospect of early stimulus cutback

* World shares slide on tapering unease, weak growth data

* Dollar rises above 100 yen, BOJ keeps policy loose

* Gold holds close to 4-mth lows, oil steadies near $108

By Richard Hubbard

LONDON, Nov 21 (Reuters) - Speculation over the U.S. policy outlook and weaker-than-expected data from major economies sent world equities lower on Thursday and pushed the dollar past 100 yen though it fell against the euro.

The euro rebounded when the head of the European Central Bank, Mario Draghi, moved to quell growing talk that it was considering an unprecedented policy of making banks pay to deposit cash overnight in a bid to boost economic activity.

The euro had come under pressure after an unsourced report on Wednesday said the ECB may consider cutting the deposit rate into negative territory.

"Let me plead with you - don't try to infer from what I say today anything on the possibility of negative rates on the deposit facility," Draghi said in a speech at an event organised by German newspaper Sueddeutsche Zeitung.

Soon after the comments the euro was up 0.2 percent at $1.3477 having started the day weaker on the talk that Fed may scale back its stimulus earlier than consensus forecasts, which had been pointing to March.

Prior to the ECB chief's intervention, the dollar had been on the front foot and world shares under pressure from the Fed talk, triggered by the release of minutes from the last policy meeting on Wednesday. These showed officials felt there was room to begin scaling back the bank's massive bond purchase programme at one of their next few meetings if economic conditions warranted it.

That shift in perceptions caused a big spike in U.S. bonds yields, boosting demand for the dollar which hit a four-month high of 100.83 yen, up 0.8 percent on the day.

It also led to a rise in German 10-year bond yields which were up 6 basis points to 1.77 percent, and encouraged equity investors to lock in some of the profits made this year from the Fed's money-pumping policy.

"Having got hooked on both indefinite QE and low interest rates, investors are becoming increasingly restless and inclined to taking profits," said Alastair Winter, chief economist at Daniel Stewart.

MSCI's world equity index, which tracks shares price moves in 45 countries, lost about 0.3 percent while U.S. stock index futures signalled a slight recovery could emerge when Wall Street opens.

Sentiment in the equity markets was also hit by surprisingly weak data from China and the euro zone which outweighed upbeat comments from the Bank of Japan as it left its massive stimulus policy in place.

The flash estimates of purchasing manager's indexes (PMIs) underlined the fragility of the global economic recovery.

The European PMIs underlined the lopsided nature of the euro zone's recovery from recession.

"Output, outside France and Germany, did rise for the fourth month in a row, suggesting the region is returning to growth, but .... the rate of increase we saw in November slid to the weakest we've seen in four months," said Chris Williamson, chief economist at survey compiler Markit.

Europe's broadest share index, the FTSEurofirst 300 , was left down 0.3 percent by midday led by a sharp fall in mining stocks which shed 1 percent.

OIL MARKET EYES IRAN

In the oil market, uncertainty over whether world powers will be able to strike a deal with Iran over its nuclear programme added to the concerns about an early Fed tapering, keeping Brent crude futures near $108 a barrel.

"Coming towards the end of the year, there are two taperings that people are watching - the tapering of Fed bond purchases and Iranian sanctions," Olivier Jakob at Petromatrix consultancy in Switzerland said. Both would depress prices.

Brent crude rose 18 cents to $108.24 a barrel by 1237 GMT LCOc1, after gaining the most in a week and ending up $1.14 on Wednesday. U.S. oil was up 23 cents at $94.08 a barrel.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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