December 11, 2013 / 3:55 PM / 4 years ago

GLOBAL MARKETS-Stocks slide on Fed taper view; euro higher

* U.S. budget deal could boost Fed taper expectations
    * World equity index slips 0.61 percent
    * Euro climbs to 6-week high against dollar; yen gains

    By Wanfeng Zhou
    NEW YORK, Dec 11 (Reuters) - Stock markets worldwide slipped
on Wednesday after the U.S. Congress announced a provisional
budget deal, which heightened expectations of a stimulus
reduction by the Federal Reserve.
    The dollar fell against the euro for a seventh straight
session, with the common currency boosted by higher money market
rates and diminishing expectations of imminent easing by the
European Central Bank.
    While the U.S. budget deal removed a key uncertainty hanging
over markets by ending three years of impasse and fiscal
instability in Washington, some expect it will strengthen a view
that the Fed may soon start to scale back its $85
billion-a-month stimulus. 
    "Right now, the market is sort of taking all this in. All
eyes are on any (Fed) tapering in December and while the deal
removes some political uncertainties, it makes tapering more
possible," said Karyn Cavanaugh, market strategist with ING U.S.
Investment Management in New York.
    The to-and-fro over when the Fed will begin to halt the flow
of cheap dollars has dominated trading worldwide for months. A
recent run of strong U.S. data and talk from policymakers have
bolstered expectations the process will start soon.
    The MSCI world equity index, which tracks
shares in 45 countries, slipped 0.6 percent.
    The Dow Jones industrial average dropped 71.03
points, or 0.44 percent, to 15,902.10. The Standard & Poor's 500
Index lost 9.67 points, or 0.54 percent, to 1,792.95. The
Nasdaq Composite Index fell 21.13 points, or 0.52
percent, to 4,039.36. 
    "It certainly does appear that a window of opportunity could
be opening up for the Fed to act next week without a sharp
market reaction, said CMC Markets strategist Michael Hewson.
"The only question remaining is as to whether they will avail
themselves of it."
    Most Asian share markets had lurched lower overnight as
investors booked profits on a range of once-crowded positions.
European stocks slipped 0.09 percent.
    Euro zone countries edged closer to agreeing a long-awaited
plan to close ailing banks and at least partly share the costs
involved. 
    The euro rose 0.1 percent to $1.3770, having hit a
six-week high of $1.3798. The dollar lost 0.3 percent to 102.55
yen. The dollar index, which tracks the U.S.
currency against a basket of six major currencies, was little
changed on the day.
    With the euro zone making progress and the European Central
Bank looking increasingly inclined to sit on its hands, the euro
could well top the $1.3832 high of the year so far, said Societe
Generale FX strategist Alvin Tan.
    "I'm afraid this euro squeeze is going to continue," Tan
said. "The liquidity conditions are definitely tightening.

  
    U.S. Treasuries prices slipped as investors pared bond
holdings before a $21 billion auction of 10-year notes, the
second leg of a three-part $64 billion sale of government debt
this week.
    The benchmark 10-year note fell 9/32 in price to
yield 2.828 percent.
    The Federal Open Market Committee, the U.S. central bank's
policy setting group, will convene next Tuesday and Wednesday.
    The Fed will begin trimming its monthly asset purchases in
March but some economists are warming up to the idea that it
will do so as early as this month or at the January policy
meeting, a Reuters poll showed on Monday.
    Despite the expected tapering, an actual rate hike remains a
distant prospect. Eurodollar and Fed fund futures have not fully priced in a first rate rise until the end
of 2015.
    Oil edged lower, shrugging off forecasts of surging global
demand from the west's energy watchdog, while the market awaited
U.S. data, expected to show a drop in crude stockpiles.
    Brent crude oil was down 43 cents at $108.95 a
barrel. U.S. crude futures for January delivery were 76
cents down at $97.75.
    Gold fell from a three-week high to $1,256 an ounce.
    Among emerging markets in the spotlight, a rise in tensions
in Ukraine saw the cost of insuring the country's debt head
towards a four-year high.  
    Scores of riot police moved against demonstrators during the
night, triggering fears among opposition leaders that they would
crush a protest over Yanukovich's decision to spurn an EU trade
deal and move Ukraine further into Russia's orbit.

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