* Stocks, lira, rand falter even after Turkish rate hike
* Fed trims bond buying as expected, safe-havens gain
* Dollar falls against Japanese yen, Swiss franc
By Herbert Lash
NEW YORK, Jan 29 Global equity markets fell on
Wednesday after the U.S. Federal Reserve further trimmed its
stimulus while emerging market currencies slumped after
aggressive interest rates hikes by Turkey and South Africa
failed to bolster their markets.
Gold and U.S. Treasuries prices rose as investors sought
safety while stocks fell on renewed selling that began last week
as investors came to grips with a revamped investment landscape
sparked by the scaling back of the Fed's quantitative easing.
On Wall Street, the major indexes all sank 1 percent.
The Fed announced a further $10 billion reduction in its
monthly bond buying as it stuck to plans to wind down its
extraordinary stimulus despite the recent turmoil across many
The Fed has pumped more than $3 trillion into the U.S.
economy since the financial crisis rocked global markets in
2008, and some of that money went into higher-yielding emerging
market assets, a reason for the recent turmoil.
"QE was creating a chase for yield and now that game is
over. It was creating potential bubbles," said Doug Cote, chief
market strategist at ING U.S. Investment Management in New York.
"By continuing the taper the Fed is mitigating future risk.
I'd rather have a correction now than a bubble bursting down the
road," Cote said.
The Turkish lira and South African rand fell
following a short-lived rally after Turkey's massive 425 basis
point rate hike overnight initially stirred hopes of reviving
risk appetites and breaking the sell-off in emerging markets.
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 the country's central bank raised rates.
Many analysts welcomed the selloff in equities, as it
brought U.S. stocks - fresh off gains last year of 30 percent or
more - down to more reasonable valuations.
"Risks are coming back into focus at multiple levels, and
people are re-pricing in what at this point is a healthy
development," said Brad McMillan, chief investment officer at
Commonwealth Financial in Waltham, Massachusetts.
Market expectations for U.S. earnings, economic growth and
exports had overextended, McMillan said.
"Market pricing, especially at the end of last year, really
included an awful lot of good news. As the news comes out, it
doesn't have to be bad news, it's just not as good as expected,"
European stocks sank to six-week lows, with major European
indexes shedding more than 1 percent at one point. But a measure
of global equity markets, MSCI's all-country index
, fell only 0.41 percent.
MSCI's emerging markets index rose 0.27 percent,
buoyed by gains in Hong Kong's Hang Seng index and
mainland China markets earlier in the session, and a rebound in
Mexico's stock market.
"The Fed has repeatedly said that these emerging markets
have to rebalance their own economic growth, they can't rely on
the Fed to do that," said David Lafferty, chief market
strategist at Natixis Global Asset Management in Boston, which
oversaw $838.2 billion in assets as of Sept. 30.
Lafferty also said that while U.S. corporate earnings have
been OK, they have not been great. "The guidance has tended to
be a bit underwhelming and that's giving the market an excuse to
let these companies grow into their multiples," he said.
The Dow Jones industrial average closed down 189.77
points, or 1.19 percent, to 15,738.79. The S&P 500 lost
18.3 points, or 1.02 percent, to 1,774.2, and the Nasdaq
Composite dropped 46.529 points, or 1.14 percent, to
In Europe, the pan-regional FTSEurofirst 300 index
closed down 0.63 percent at 1,289.94. The EuroSTOXX 50
fell 0.89 percent at 3,011.45 points.
Brent crude oil traded above $107 a barrel as U.S. crude oil
futures fell after government data showed a hefty build in crude
inventories. Losses were curbed by a larger-than-expected stocks
draw in distillates, the third in as many weeks, spurred by
severely cold weather.
Brent rose 44 cents to settle at $107.85 a barrel.
U.S. oil fell 5 cents to settle at $97.36 a barrel.
U.S. COMEX gold futures for February delivery settled
up $11.40 an ounce at $1,262.20.
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 0.75 percent lower at 102.18 yen,
holding above the seven-week low set on Monday. The dollar edged
down 0.27 percent against the Swiss franc at 0.8944 franc
U.S. government bond prices rose, with the 10-year note
up 19/32 in price to yield 2.6804 percent.
Bund futures rose 44 ticks to settle at 142.90