* MSCI World Index posts worst two weeks since June
* Dollar touches 5-year high vs yen, gains versus euro
* Investors focus on Fed meeting next week
By Wanfeng Zhou
NEW YORK, Dec 13 The U.S. dollar hovered near a
five-year high against the yen and rose against the euro on
Friday, while global equity indexes slipped on growing concerns
the U.S. Federal Reserve could surprise investors by scaling
back its stimulus as early as next week.
Stronger-than-expected U.S. data and a budget deal in
Washington have brightened the outlook for the U.S. economy but
are causing jitters in equity markets, which have benefited from
ample central bank liquidity. The current Thomson Reuters
consensus among economists is still for the Fed to begin
withdrawing stimulus in March.
"There's a lot of uncertainty going into the (Fed) meeting
and some are talking about a small taper next week, although
that is not our view. We still think the Fed will wait until
January to make any announcement," said Greg Moore, currency
strategist at TD Securities in Toronto.
The Fed will hold its last policy meeting of the year on
Tuesday and Wednesday.
Concerns about a possible Fed surprise next week resulted in
U.S.-based funds pulling $6.51 billion out of stock mutual funds
in the past week, the biggest outflow this year, according to
Thomson Reuters Lipper data released on Thursday.
The MSCI world equity index was down 0.07
percent at 391.89, taking its losses for the past two weeks to
2.49 percent, the biggest fortnightly loss since June.
The prospect of Fed tapering boosted the dollar, with the
euro falling 0.1 percent to $1.3738.
The dollar slipped against the yen after earlier hitting
five-year highs. It last traded at 103.17 yen, down 0.2
percent on the day.
U.S. stocks ended little changed on Friday after a three-day
drop but logged their worst week in nearly four months.
The Dow Jones industrial average was up 15.93 points,
or 0.10 percent, at 15,755.36. The Standard & Poor's 500 Index
dropped 0.18 point, or 0.01 percent, to 1,775.32. The
Nasdaq Composite Index rose 2.57 points, or 0.06
percent, to 4,000.98.
The pan-European FTSEurofirst 300 touched two-month
lows and ended down 0.1 percent at 1243.47 points.
Emerging markets were also hit, with sell-offs in currencies
- including the Indonesian rupiah and the Indian rupee
- on concern that tighter Fed policy could sap flows to
"We have taken down our exposure to some of the smaller
markets, as the tapering can be a hassle for some
emerging-market currencies," said Hans Peterson, the global head
of investment strategy at SEB Private Banking.
Given the scale of the market moves in anticipation of the
Fed meeting, some analysts said a rebound in equities was
possible once the meeting is over, whether the Fed acts or not.
"I think either way we can get a relief rally post the Fed,
because either we will get a very small taper and really strong
guidance on rates, or we will get no taper," said Alan Higgins,
chief investment officer, UK, at Coutts.
Expectations for Fed tapering and prospects for oil ports in
eastern Libya to resume exports pressured oil prices.
January Brent gained 16 cents to settle at $108.83 a
barrel in seesaw trading, following a fall of more than $1 on
U.S. crude futures for January fell 90 cents to
settle at $96.60 a barrel, after rising around $6 in the past
Gold rose about 1 percent to $1,237 an ounce after a two-day
fall, but sentiment remained fragile.
Benchmark U.S. 10-year Treasury notes last
traded up 3/32 in price to yield 2.8664 percent, after data
showed muted inflation pressures, reviving hopes the Federal
Reserve will not reduce its bond purchase stimulus program next
Two-year German yields hit a three-month high
as banks repaid the highest weekly amount since February to the
European Central Bank.