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GLOBAL MARKETS-Equities dip, dollar slips; Fed focus curbs moves
September 12, 2013 / 9:14 PM / 4 years ago

GLOBAL MARKETS-Equities dip, dollar slips; Fed focus curbs moves

* Stocks dip as investors await Fed meeting next week
    * Weak euro zone factory data pressures euro
    * After Verizon deal, Treasuries regain footing
    * Dollar falls to two-week low


    By Ellen Freilich
    NEW YORK, Sept 12 (Reuters) - U.S. stocks slipped,
safe-haven Treasuries prices rose and the dollar dipped on
Thursday as investors turned defensive before  next week's
Federal Reserve policy meeting.
    The stock pullback ended a seven-day winning streak for the
S&P 500 stock index while data showing a drop in euro zone
factory output ended an eight-day rise in world equity markets.
    New U.S. claims for state unemployment benefits slipped
31,000 to a seasonally adjusted 292,000 in the latest week, the
lowest level since 2006. But markets dismissed the news after
the Labor Department said technical problems had kept two states
from processing all the claims they received. 
    The dollar slipped from a seven-week high against the yen
and traded little changed against the euro as U.S. bond yields
fell and investors speculated the Fed would be cautious about
reducing stimulus when it meets next week.
    U.S. Treasuries prices rose as investors recovered from a
mammoth week of new corporate bond and government supply.
    Safe-haven U.S. Treasuries drew some buyers, allowing
benchmark 10-year prices to rise 5/32 and yields to ease to 2.90
percent from over 3 percent last week.
    Still, given expectations that the Federal Reserve is poised
to begin unwinding its long-standing monetary accommodation,
benchmark yields might not be high enough, said Jeff Knight,
head of global asset allocation at Boston-based Columbia
Management, with $58 billion in assets under management.
    "A 10-year with a 3.5 percent yield would be a more
comfortable equilibrium level than 3 percent," he said.
    The Treasury sold $13 billion in 30-year bonds, the final
sale of $65 billion in new U.S. government debt this week.
    Market moves were modest, however.
    "I would expect to see a holding pattern and possibly some
risk aversion between now and the Fed's policy meeting," said
Robert Tipp, chief investment strategist with Prudential Fixed
Income, with about $400 billion in assets under management, in
Newark, New Jersey.
    Investors are focused on the Fed's policy meeting on Tuesday
and Wednesday, expecting the U.S. central bank to begin reducing
its monthly bond purchases, though by less than once thought.
    Uncertainty about how much the Fed would reduce stimulus has
grown with weaker-than-expected U.S. data, including jobs growth
in August, and consumer spending, home building, new home sales,
durable goods orders and industrial production in July.
    A Reuters poll of economists on Monday found that most now
see the Fed trimming its $85 billion monthly spending on bonds
by about $10 billion, compared with estimates for a $15 billion
reduction in a poll before the jobs report.
    Tipp said the market will pay close attention to the new
forecasts for 2016 that Fed officials release in conjunction
with their September 18 policy statement.
    "Markets have come a long way toward pricing in
normalization of monetary policy but we still have risk, in
large part hinging on Fed policymakers' expectations as to where
the federal funds rate may be at the end of 2016," he said.
    "Coming out of the meeting, the key variable the markets
will take their cue from is that forecast for 2016," Tipp said.
    As foreign exchange markets looked ahead to the U.S. central
bank policy meeting, the dollar hovered near two-week lows
against a basket of major currencies.
    The market is focused on the Fed, which will err on the side
of caution, said Gordon Charlop, a managing director at
Rosenblatt Securities in New York.
    "They will be very measured in their approach and won't do
anything precipitous," he said.
    On Wall Street, the S&P 500 had risen 3.4 percent over the
prior seven sessions as concerns about a Western military strike
against Syria faded and stronger-than-expected economic data
from China buoyed prices.
    On Thursday, however, the Dow Jones industrial average
 fell 25.96 points, or 0.17 percent, at 15,300.64. The
Standard & Poor's 500 Index fell 5.71 points, or 0.34
percent, at 1,683.42. The Nasdaq Composite Index fell
9.042 points, or 0.24 percent, at 3,715.97.
    Europe's broad FTSE Eurofirst 300 index was down
0.02 percent. The MSCI world equity index was
down 0.18 percent.
    SIGNS OF STRENGTH IN CREDIT MARKETS
    Treasuries debt prices rose a day after the completion of
Verizon's record-breaking corporate bond deal.
    Verizon sold $49 billion worth of bonds, eclipsing the
previous investment-grade record of $17 billion by Apple in
April, according to IFR, a Thomson Reuters service.
    "The Verizon deal showed that financing is still available
at these (interest rate) levels and that's encouraging for
mergers and acquisitions and leveraged buyouts," said Jason
Brady, managing director and portfolio manager at Thornburg
Investment Management in Santa Fe, New Mexico.
    If the Fed next week adjusts its bond-buying program only
modestly, that, too, will favor riskier assets, Brady said.
    Until then, markets will tend to tread water.
    "Unless we get a significant new piece of information, we're
going to be in this range-bound pattern, maybe with some bias
for dollar weakness, as we wait for the Fed," said Vassili
Serebriakov, FX strategist at BNP Paribas in New York.
    
    ASIAN RELIEF
    Reduced expectations of the degree of Fed tapering eased
pressure on emerging market currencies, which had been driven up
as the cheap U.S. money was pumped into high-yielding stocks and
bonds, and are now falling as these trades reverse.
    Indonesia's central bank unveiled a surprise rate hike to
help the rupiah recover from a 4-1/2-year low. Other
Asian central banks were expected to wait for next week's Fed
decision before taking any action.
    MSCI's broadest index of Asia-Pacific shares outside Japan
 shed 0.2 percent while the stronger yen and
downbeat economic data helped push Japan's Nikkei stock average
 down 0.26 percent.
    Gold skidded to $1,326.54 an ounce, while Brent crude
 added about $1.5 to $113.00 as investors observed the
diplomatic efforts to place Syria's chemical weapons under
international control.

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