* World shares slip as Fed hints at tighter policy
* 10-yr Treasury yields hit highest since May
* Dollar index extends rally
By Rodrigo Campos
NEW YORK, Jan 3 U.S. Treasury debt prices sank
and world stocks reversed course and dipped on Thursday after
minutes from the latest meeting of the Federal Reserve's policy
committee showed rising concern about the Fed's policy of buying
bonds to stimulate growth.
The Federal Open Market Committee's minutes also extended a
rally in the U.S. dollar, fueled earlier by concerns about more
budget wrangling in Washington.
The December meeting minutes showed several of the central
bank's officials were leaning toward slowing or stopping
purchases well before the end of 2013. The program has been key
to a rally that has catapulted the U.S. benchmark S&P 500
index to near a 5-year high.
"This is somewhat earlier than what the markets would have
thought," said Millan Mulraine, senior economist at TD
Securities in New York.
"While the evolution in the data, particularly progress in
the labor market, will ultimately determine the timing of the
end point for purchases, it seems reasonable to assume that the
Fed has penciled in some time in 2013 as a natural point to
conclude the QE3 program."
Global equities retreated while the U.S. dollar climbed to a
near four-week high against a basket of currencies on concerns
about another looming fight over spending and taxes in
The MSCI world equity index fell 0.3 percent
after hitting an 18-month high on Wednesday.
The Dow Jones industrial average lost 31.33 points,
or 0.23 percent, at 13,381.22. The Standard & Poor's 500 Index
was down 4.02 points, or 0.27 percent, at 1,458.40. The
Nasdaq Composite Index was down 13.59 points, or 0.44
percent, at 3,098.67.
A European equity benchmark ended up 0.45 percent
after hitting its highest intraday level since March 2011,
boosted by a belated reaction in Swiss stocks due to a holiday.
SAFER BONDS SLIDE
While the Fed said it would keep buying bonds to boost the
economy over coming months, the meeting's minutes underscored a
growing reticence about more increases to the central bank's
$2.9 trillion balance sheet.
"Several (officials) thought that it would probably be
appropriate to slow or to stop purchases well before the end of
2013, citing concerns about financial stability or the size of
the balance sheet," the minutes said.
Ten- and 30-year U.S. government debt sold off sharply after
the document was released. Prices for 10-year U.S. debt
were down 21/32 to yield 1.9077 percent, up from
1.84 percent late on Wednesday and the highest since May.
"I think the bottom line is that the policy is likely to be
in place for a while, but the minutes seem to be raising some
doubts about the commitment to the policy," said Julia Coronado,
chief North America economist at BNP Paribas in New York.
"This is going to be an ongoing issue for the Fed," she
added. "We're in uncharted waters."
March Bund futures prices dropped 0.6 percent to
their lowest in nearly a month.
DATA UPBEAT, BUT BUDGET TALKS LOOM
Data suggesting some momentum in the U.S. economy as the
year ended showed private-sector employers stepped up hiring in
December, cutting losses in stocks and further supporting the
Data showing activity in China's services sector and at U.S.
factories expanded in December brightened the outlook for global
growth, also capping losses in risky assets.
Dragging on sentiment, U.S. President Barack Obama and
congressional Republicans face two more months of tough talks on
spending cuts and an increase in the nation's debt limit as the
hard-fought deal to avert the "fiscal cliff" of automatic tax
hikes and spending cuts covered only taxes and delayed decisions
on expenditures until March 1.
"There's still some clouds over the horizon, with the fiscal
issue of the government," said Jeff Meyerson, head of trading at
Sunrise Securities in New York. "We don't know how they're going
to pan out, but in all likelihood there's not going to be a