(Corrects 5th last paragraph to say “two-month peak” instead of “one-month peak”)
* Wall Street edges lower with Fed speakers in focus
* U.S. Treasuries weaken; Brent, U.S. crude fall
* Dollar climbs to one-month peak vs yen, nears 100 yen
By Ellen Freilich
NEW YORK, Nov 12 (Reuters) - Global equity markets and government debt prices fell on Tuesday as investors worried about the Federal Reserve reducing its stimulus, a critical support for asset prices and the economy.
German Bunds hit three-week lows, tracking weaker prices for U.S. Treasuries, as investors made room for this week’s latest supply of U.S. government debt.
A measure of global equity performance was down slightly as stocks on Wall Street and in Europe fell, a day after the Dow Jones industrial average hit yet another record close.
“Quantitative easing suppresses market volatility, but at what cost?” Matt Toms, head of public fixed income at ING Investment Management, said of the Fed stimulus. “Would removing quantitative easing act as a volatility accelerant? We saw that happen in May.”
Other far-reaching factors could minimize any volatility that ensues from fewer Fed purchases of Treasuries and mortgage-backed securities, however.
“There’s a great yearning for stability, so higher yields will bring cash off the sidelines into fixed-income assets,” Toms said, and those flows would keep downward pressure on rates.
Also, the Fed, along with the European Central Bank and Bank of Japan, “fear deflation,” Toms noted.
Investors pored over remarks from Fed officials for clues about potential Fed tapering.
Atlanta Fed President Dennis Lockhart sounded a dovish note, citing downside risks to the 2014 economic outlook. He said consumer spending needed to rise and the fiscal drag on economic growth had to fade. Monetary policy overall should remain “very accommodative for quite some time,” he added.
But Dallas Fed President Richard Fisher, predictably, told CNBC cable television that the Fed’s monetary stimulus program cannot continue forever.
The Dow Jones industrial average fell 73.21 points, or 0.46 percent, at 15,709.89. The Standard & Poor’s 500 Index was down 9.42 points, or 0.53 percent, at 1,762.47. The Nasdaq Composite Index was down 15.98 points, or 0.41 percent, at 3,903.81.
“There are not as many stocks participating on the upside as there are for the downside,” said Frank Gretz, market analyst and technician for brokerage Shields & Co. in New York.
“The net of this is that the market has more to go on the downside on the short-term, although there isn’t a big problem, a big divergence in the market,” he said.
MSCI’s all-country world equity index fell 0.3 percent after two days of gains, while the pan-European FTSEurofirst 300 index of leading regional shares fell 0.59 percent.
U.S. Treasury prices fell, with the benchmark 10-year U.S. Treasury note down 7/32 in price to yield 2.7719 percent.
The fallout of forecast-beating U.S. jobs data on Friday wiped away Bund gains triggered by the European Central Bank’s surprise interest rate cut a day earlier.
“The main story for the Bunds is still the Fed and what happens with tapering,” said Alan McQuaid, chief economist at Merrion Stockbrokers in Dublin. “I still think more people expect them to move in March rather than in December. That’s my view as well, but I wouldn’t completely rule out December.”
The Bund future settled down 31 ticks at 140.70.
The dollar rose to a two-month peak against the yen as investors began to bet the Fed will begin trimming stimulus sooner than previously anticipated.
The dollar was last up 0.47 percent at 99.62 yen, with the peak of 99.79 yen its strongest since Sept. 13.
The euro was up 0.18 percent at $1.3430 and holding above a two-month low of $1.3295 hit last Thursday, when it sold off sharply after the ECB’s unexpected rate cut.
Brent crude futures initially rose as disruptions to Libyan oil exports showed no sign of abating and Iran said splits between Western powers had prevented a breakthrough in nuclear talks that could relax sanctions.
Brent crude for December delivery was down 0.30 cents at $106.10 a barrel. U.S. crude for December delivery was down $1.57 cents at $93.57 a barrel.
Additional reporting by Herb Lash in New York and Richard Hubbard in London; Editing by Dan Grebler