* Global benchmark hits lowest since mid-October
* Fed decision, weak Chinese data weigh on risk appetite
* Bonds, dollar gain
By Toni Vorobyova
LONDON, Jan 30 Global equities hit 3 1/2-month
lows on Thursday, as a stimulus cut by the U.S. Federal Reserve
and weak Chinese data fuelled a selloff in emerging markets and
pushed investors towards safe-haven bonds.
The Fed trimmed its monthly bond-buying by $10 billion and
made no mention of the turbulence in emerging markets, which
some investors had thought might delay the widely flagged policy
The prospect of a steady withdrawal of stimulus coupled with
improving economies in the developed world has lured funds
away from many emerging markets, particularly those with current
account deficits or political troubles.
Russia's central bank pledged unlimited intervention if the
rouble dropped outside its target band, after the currency hit
record lows against the euro on Thursday. Romania indirectly
intervened to support the falling leu.
Currencies in South Africa and Hungary also hit multi-year
troughs, and the Turkish lira approached this week's earlier
record low. Rate hikes by South Africa and Turkey and pledges by
India to do whatever was needed to stabilise its markets so far
have not stemmed the flow of funds from the emerging world.
"There is a lack of positive triggers right now, and there
is a growing concern about what happens. It's not 1998 ... we
have a very cautious stance on all emerging-market equities and
currencies at the moment," said Hans Peterson, global head of
investment strategy at SEB Private Banking.
"If you have weak fundamentals and liquidity is a little bit
tighter that always shows, but it's the weak fundamentals that
are really the issue, not liquidity."
The MSCI All-Country World share index fell
as low as 390.80 points, hitting its lowest since mid-October
and taking its losses for January so far to 4.3 percent - on
track for its worst month in 1-1/2 years.
Underscoring the problems in emerging markets, the HSBC PMI
showed that Chinese manufacturing slipped to a six-month low for
January. That put the index reading marginally weaker than a
flash estimate released last week.
For companies in the developed world, emerging-market
weakness usually translates into less demand from those
countries. It also erodes the value of sales there in euros or
Diageo, the world's biggest distilled drinks
company, is among those suffering. The London-listed company,
which generates about 42 percent of revenues in emerging
markets, missed forecasts as sales fell in China and Nigeria.
Its shares shed 6.5 percent, the biggest decline on the
broad FTSEurofirst 300 index, which itself lost 0.3
"FX plus growth in emerging market is a big issue for most
European companies, and I'm not sure it's going to stop within
the (next) few weeks or months," said Marc Renaud, chairman of
Paris-based Mandarine Gestion.
Some of the money leaving equities appeared to find its way
into the developed world's government bond market. German Bund
futures rose 31 ticks to 143.21, while German 10-year
yields fell to their lowest in nearly six months.
Italy's 10-year debt costs fell to their lowest since
August 2010 at an auction on Thursday, partly allaying fears the
emerging-market turmoil would spread to weaker European
The Fed's stimulus reduction also lent some support to the
dollar, which gained 0.4 percent against a basket of major
currencies, and analysts forecast more strength to come.
A stronger dollar and weaker emerging-market currencies
weighed on metals prices, amid concern those resources will
become more expensive for emerging-market consumers.
London copper slipped to near a two-month low and
gold edged lower.
"Barring any major change in the U.S. macroeconomic
situation, we are still of the view that by the end of the year
we are likely to see tapering completely wound down, which is
going to weigh on gold in the next few months," Mitsubishi
analyst Jonathan Butler said.
Oil steadied, however, with Brent holding around $108 a
barrel, as cold weather across the northern Hemisphere
U.S. stock futures also bucked the broader weakness in
global equities, edging higher on the back of a string of
strong results from the likes of Facebook and Whirlpool