* Stocks, lira, rand falter despite Turkey rate hike
* Markets to face test as Fed is expected to trim bond buys
* Safe-haven assets, commodities regain ground
By Herbert Lash
NEW YORK, Jan 29 Global equity markets fell on
Wednesday and emerging-market currencies slumped on worries that
aggressive interest rates hikes by Turkey and South Africa will
not be enough to prop up emerging markets, and as an upcoming
policy decision by the U.S. Federal Reserve added to jitters
over global investing patterns.
The Turkish lira and South African rand fell
following a short-lived rally after Turkey's massive 425 basis
point rate hike overnight had stirred hopes of breaking a sharp
sell-off in emerging markets and reviving risk appetite.
The lira gave back almost two-thirds of an earlier 3 percent
surge, stocks in Istanbul buckled and South Africa's rand fell
even after its central bank raised interest rates.
Gold rose as stocks in Europe sank to six-week lows and Wall
Street stocks fell.
"Our markets are so linked together that if something pulls
a trigger, it's like a domino effect. We are not exactly sure
how one would impact (the decision of) the other, but things
happen fast and investors get quickly nervous," said Joe
Saluzzi, co-head of equity trading at Themis Trading in New
Major European indexes shed more than 1 percent at one
point but a measure of global equity markets. MSCI's all-country
index, fell only 0.16 percent.
MSCI's emerging markets index rose slightly,
buoyed by gains in Hong Kong's Hang Seng index and
mainland China markets.
Investors were also worried that the Fed at the close of its
policy meeting on Wednesday afternoon could announce another
trimming of U.S. monetary stimulus, something that may
exacerbate the emerging markets rout.
The turmoil in emerging markets and recent disappointing
U.S. job growth are unlikely to deter the Fed from trimming its
bond-buying stimulus, analysts say, as Ben Bernanke wraps up his
last policy meeting at the helm of the U.S. central bank.
Removal of the Fed's bond-buying has been a major factor in
the emerging markets' sell-off because much of that money has
flowed to the higher-yielding assets to be found in these
markets. The Fed in December decided to pare its monthly
purchases of Treasuries and mortgage-backed securities, designed
to drive down long-term borrowing rates, by $10 billion, to $75
If the Fed reduces its quantitative easing program by
another $10 billion, that would likely put further pressure on
emerging markets currencies, said Nick Xanders, head of European
equity strategy at BTIG in London.
"For the last three years investors have thought that
they've put the glass slipper on Cinderella, but actually, when
the QE is taken away, you realize it's the ugly stepsister,"
The Fed will issue its policy statement at 2 p.m. (1900 GMT)
The Dow Jones industrial average fell 98.26 points,
or 0.62 percent, to 15,830.3. The S&P 500 lost 8.36
points, or 0.47 percent, to 1,784.14 and the Nasdaq Composite
dropped 20.207 points, or 0.49 percent, to 4,077.756.
In Europe, the pan-regional FTSEurofirst 300 index
fell 0.72 percent at 1,288.73. The EuroSTOXX 50 was
down 1.0 percent at 3,007.39 points.
Brent crude oil traded above $107 a barrel as investors
waited to hear the Fed's decision, with prices supported as
concerns of turmoil in emerging economies eased.
Brent rose 19 cents $107.60 a barrel. U.S. oil
was down 52 cents to $96.89.
Gold for February delivery rose 1.06 percent to
$1,264.1 an ounce.
The dollar weakened against the yen and Swiss franc as
traders reckoned emergency action taken to stabilize Turkish
markets would not be enough to calm jitters over global emerging
The dollar turned 0.64 percent lower at 102.29 yen,
holding above the seven-week low set on Monday. The dollar edged
down 0.16 percent against the Swiss franc at 0.8957 franc
U.S. government bond prices rose, with the 10-year note
8/32 in price to yield 2.7168 percent.
Bund futures were up 0.31 percent at 142.9 euros.