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GLOBAL MARKETS-World equities dip, dollar slips; Fed focus curbs moves
September 12, 2013 / 7:28 PM / 4 years ago

GLOBAL MARKETS-World 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 rallied and the dollar dipped on Thursday
as investors turned defensive ahead of next week's Federal
Reserve policy meeting.
    The price cuts in stocks appeared to put the S&P 500 index
on track for its first loss after a seven-day winning streak,
while data showing a drop in euro zone factory output stalled 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 since the Labor Department said
technical problems had kept two states from processing all the
claims they received, markets dismissed the news.
 
    The dollar slipped from a seven-week high against the yen
and traded little changed against the euro as U.S. bond yields
declined 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.
    The Treasury sold $13 billion in 30-year bonds on Thursday,
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, with expectations growing that the U.S. central
bank will begin to reduce its monthly bond purchases, but 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.
    Safe-haven U.S. Treasuries drew some buyers, allowing
benchmark 10-year yields to ease to 2.90 percent from over 3
percent last week.
    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 has risen 3.4 percent
over the prior seven sessions as concerns about a Western
military strike against Syria have faded and sentiment has been
buoyed by stronger-than-expected economic data from China.
    On Thursday, however, the Dow Jones industrial average
 was down 2.99 points, or 0.02 percent, at 15,323.61. The
Standard & Poor's 500 Index was down 3.30 points, or 0.20
percent, at 1,685.83. The Nasdaq Composite Index was
down 1.68 points, or 0.05 percent, at 3,723.33.
    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 $1.17 to $112.67 as investors watched the
step up in diplomatic efforts to place Syria's chemical weapons
under international control.

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