GLOBAL MARKETS-Stocks halt rally, BoE minutes stun markets

Wed Aug 20, 2014 8:25am EDT

(Fixes spelling in headline)
    * Stocks fall, BoE minutes raise specter of rate hike
    * Fed minutes also on tap
    * Euro below $1.33 for first time in nearly a year

    By Jamie McGeever
    LONDON, Aug 20 (Reuters) - World stocks fell on Wednesday as
investors braced for the possibility that a major central bank
could raise interest rates this year after Bank of England
minutes showed two of the bank's nine rate-setters voted for a
hike earlier this month.
    Sterling and UK bond yields also rose after the unexpected
shift closer to higher British rates, while record-low euro zone
money market rates pushed the euro to its weakest against the
dollar in a year.
    As central bank policy signals and relative interest rates
eclipsed geopolitical developments, investors were also braced
for the release later Wednesday of minutes from the last Federal
Reserve policy meeting. 
    The Fed minutes come ahead of Fed Chair Janet Yellen's
keenly-anticipated address to the annual gathering of
policymakers in Jackson Hole, Wyoming, on Friday.
    "A split vote shows that the first rate hike is
approaching," said Philippe Gudin, an economist at Barclays,
referring to the BoE. 
    "We expect the support for a rate increase to grow in the
coming months and we foresee the first hike taking place before
year end," he said. 
    At midsession, Britain's FTSE was down half of one
percent at 6,748 points, Germany's DAX was off a
similar amount at 9,293 points and France's CAC was down
a third of one percent at 4,238 points.
    Two of the biggest stock market movers in Europe were
brewers. Shares in Denmark's Carlsberg sank as much
as 6 percent after the company said deteriorating conditions in
Russia would hit overall profit this year. Dutch
brewer Heineken jumped as much as 6 percent after
first-half profit rose. 
    Stocks had been underpinned this week as attention shifted
away from the Ukraine-Russia conflict, and by strong U.S.
housing data and lower-than-expected UK inflation figures. 
    The MSCI index of world stocks slipped 0.1
percent to 428 points, and U.S. futures pointed to losses of
around 0.1 percent at the open.
    
    BOE, ECB DIVERGENCE 
    Sterling rose 0.2 percent to $1.6650, rebounding from
a five-month low earlier this week around $1.66, and Britain's
10-year gilt yield rose 3 basis points to 2.43 percent
.
    Elsewhere in currencies, the dollar surged to a near
one-year high against a basket of major counterparts. It hit
103.26 yen, its highest since early April, after Japan
reported a larger-than-forecast trade deficit in July.
    The euro slumped below $1.33 for the first time in 11
months after German producer prices fell more than expected in
July, fuelling concerns that deflationary forces are spreading
to the core of the 18-nation bloc.
    "This is a combination of expectations of very low rates for
a very long period of time, but also a reflection that the
market has raised the odds of the European Central Bank being
drawn into taking more serious action," said Elwin de Groot, a
senior market economist at Rabobank in Utrecht, The Netherlands.
    Overnight interbank lending rates in the euro zone are
coming ever closer to zero. Eonia rates are now just 0.005
percent 
    Key U.S. and euro zone government bond yields were little
changed. The 10-year German government bond yield hovered just
below 1 percent, the 2-year German yield was steady
just below 0 percent after an auction and the 10-year
U.S. yield was flat at 2.40 percent.
    The 10-year Treasury yield had risen for the last three
days, rebounding from a 14-month low of 2.30 percent last week.
    In commodities, gold was stuck below $1,300 an ounce XAU=
after shedding 1.3 percent in the last three sessions.
    Brent crude futures recovered from near 14-month lows,
ticking up a third of one percent to $101.95 a barrel,
although ample supplies are putting prices at risk of renewed
losses. 
    
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 (Reporting by Jamie McGeever, additional reporting by Marius
Zaharia; Editing by Toby Chopra)