* Clear signal on Fed tapering sparks global asset selloff
* MSCI world markets index drops 3.0 pct in biggest 1-day
fall in 19 months
* Weak China data add to global growth concerns
* Oil, gold, copper slump as U.S. dollar gains
By Herbert Lash
NEW YORK, June 20 Global equity markets, bond
prices and commodities fell sharply on Thursday, a day after the
Federal Reserve said the U.S. economy was growing strongly
enough for it to begin slowing its unprecedented stimulus.
The Fed's bond-buying program, often called quantitative
easing, has lifted both the U.S. economy and world financial
markets by pushing interest rates to historic lows.
But Federal Reserve Chairman Ben Bernanke's statement on
Wednesday laying out a likely end to the program by next year,
if the economy continues to strengthen, brought a dose of
finality to the markets.
"I kind of think of the U.S. economy as this person who was
lost at sea with a life vest provided by Ben Bernanke," said
Andrew Szczurowski, a portfolio manager at Eaton Vance in
Boston. "And now all of a sudden Bernanke is talking about
poking a hole in the life vest, perhaps before the stranded
person is able to swim to shore, and we are seeing essentially
every market in the world react negatively to this."
The U.S. dollar rallied further against the euro and yen
after stronger-than-expected readings on business activity in
the United States supported the Fed's view of diminished
downside risks to the economic outlook.
The economic data added to investors' fears that the era of
easy money would soon wane.
Home resales jumped to their highest level in 3-1/2 years in
May and factory activity in June in the U.S. mid-Atlantic region
rebounded to its highest level in more than two years.
Equities on Wall Street fell more than 1.4 percent while
stocks in Europe dropped 3.0 percent. Government debt prices
fell, with yields on the 10-year U.S. Treasury note rising to
more than 2.41 percent, a level last seen almost two years ago.
"We thought there would be a correction somewhere. This
probably is it. We've been looking for a correction since
April," said Bruce Bittles, chief investment strategist at
brokerage and research firm Robert W. Baird & Co. Sarasota,
MSCI's benchmark index for emerging equities
slumped 3.96 percent and shares across the Asian Pacific region
outside Japan recorded their biggest daily drop
since late 2011. The index fell 3.87 percent.
MSCI's all-country world index fell 2.93
percent, its largest single-day drop in 19 months, representing
approximately $1 trillion in market value. The pan-European
FTSEurofirst 300 index of leading regional shares fell
3.07 percent to close at 1,143.99.
On Wall Street, the Dow Jones industrial average was
down 248.52 points, or 1.64 percent, at 14,863.67. The Standard
& Poor's 500 Index was down 29.28 points, or 1.80
percent, at 1,599.65. The Nasdaq Composite Index was
down 60.56 points, or 1.76 percent, at 3,382.64.
Bernanke's comments were more hawkish than some had expected
and promoted broad selling across bonds, with five- and
seven-year notes suffering the most.
The benchmark 10-year U.S. Treasury note was
down 24/32 in price to yield 2.4412 percent.
The U.S. dollar rallied to two-week highs against major
currencies, and looked set to extend gains.
"The prospect of less QE (and) higher interest rates is
something that should help the dollar, particularly in an
environment where some other central banks are still moving in
the other direction," said Robert Lynch, senior currency
strategist at HSBC in New York.
The euro fell to a session low of $1.3162, a two-week
low. It was last at $1.3235, down 0.44 percent on the day.
The U.S. dollar rose 1.53 percent to 97.94 yen.
Oil fell more than $3 a barrel while gold prices tumbled to
their lowest in more than 2-1/2 years and silver fell more than
6 percent as markets reacted to Bernanke's comments and a drop
in Chinese factory activity to a nine-month low.
Emerging markets, many of which have been primed by the
cheap Fed cash, took some of the biggest selling as investors
rushed to the exits.
Factory output in China, the world's second-largest economy,
weakened to a nine-month low in June, combining with a continued
recession in the euro zone to threaten a global recovery led by
the United States.
A day after the Federal Reserve suggested the U.S. economy
was firmly on a recovery path - enough so to withdraw some
monetary stimulus - data showed China's economy was stuttering.
Faltering demand pushed the flash China HSBC Purchasing
Managers Index down to 48.3 in June from 49.2, increasing
pressure on the People's Bank of China to loosen the monetary
Meanwhile, Markit's Flash Eurozone Composite PMI, which
makes up around 85 percent of the final reading and is seen as a
reliable economic growth indicator for the bloc, remained below
the dividing line between growth and contraction. It did,
however, rise to 48.9 in June from May's 47.7, suggesting the
decay has eased across the 17-nation bloc.
China's economy grew at its slowest pace in 13 years in 2012
and data so far this year has been weaker than forecast,
bringing warnings the country could miss its 7.5 percent growth
target, though possibly not by much.
Crude oil prices also took a hit from a surprise increase in
U.S. crude inventories, even in the midst of the summer driving
season, when demand for gasoline rises. Stocks rose by over
300,000 barrels, in contrast to the 500,000 barrel drop analysts
Brent crude was down $3.58 to $102.54 a barrel,
while U.S. oil fell $2.99 to $95.25.
Spot gold prices fell $59.88 to $1,290.80 an ounce.