NEW YORK (Reuters) - World stock markets dipped on Tuesday as investors sought new catalysts to extend a rally amid signs of tepid economic growth, while crude oil sank ahead of a possible easing of sanctions against Iran.
While accommodative policies from central banks around the world have boosted markets this year, market participants have grown concerned that the rally may have been overdone. In a sign that weakness may lie ahead, the Paris-based Organization for Economic Cooperation and Development cut its 2014 forecast for global economic growth to 3.6 percent from the 4.0 percent it saw in May.
The outlook change followed negative comments from activist investor Carl Icahn, who on Monday told Reuters there was a chance the stock market could face a “big drop,” citing weak earnings growth.
Separately, short-seller Jim Chanos told Reuters he was bearish on oil and coal companies, a sector tied to the pace of economic growth.
“We’ve had a tremendous run on a year-to-date basis, a pause here would make sense,” said Eric Wiegand, senior portfolio manager at the Private Client Reserve of U.S. Bank.
Despite the day’s decline, the Fed’s bond-buying program, which is providing $85 billion of liquidity a month, is seen providing a floor to equity prices, though investors are keen for clues of when the Fed will begin to scale back the program.
“I’d say there’s a very low probability the Fed does anything between now and the end of the year,” said Dan Veru, who oversees $4.5 billion as chief investment officer of Palisade Capital Management, adding that markets would “drift up” through then.
MSCI’s world equity index .MIWD00000PUS, which tracks shares in 45 countries, fell 0.3 percent, after hitting a six-year peak on Monday.
The Dow Jones industrial average .DJI was down 9.25 points, or 0.06 percent, at 15,966.77. The Standard & Poor's 500 Index .SPX was down 3.68 points, or 0.21 percent, at 1,787.85. The Nasdaq Composite Index .IXIC was down 17.51 points, or 0.44 percent, at 3,931.55. The Dow was helped by a rally in Home Depot (HD.N), which advanced 0.9 percent after its quarterly results.
The earnings season has been mixed in Europe, contributing to the region's 0.7 percent drop on Tuesday. Shares in the region .FTEU3 recently hit a five-year high.
“Pan-European multiples are close to multi-year highs. That means markets are no longer cheap and we need to see some earnings improvement to warrant higher equity prices,” said Gerhard Schwarz, head of equity strategy at Baader Bank.
Earlier, optimism sparked by China’s bold economic reform plans continued to bolster Asian markets, lifting MSCI’s index of Asia-Pacific shares outside Japan .MIAPJ0000PUS by 0.2 percent, extending Monday’s 1.4 percent rally.
In the commodity markets, copper fell 0.1 percent while gold was flat. U.S. crude oil futures rose 0.3 percent while Brent crude lost 1.3 percent.
Brent was pressured as talks this week between world powers and Iran could lead to an easing of sanctions against the oil-rich country.
The dollar held steady on Tuesday, caught between talk the U.S. central bank could keep its easy policy stance until March, and some optimistic comments on the economy by two top Fed officials that could signal an earlier move.
William Dudley, president of the New York Fed and one of the staunchest supporters of the Fed’s easy-money policies, cited labor market improvements and stronger-than-expected growth in the third quarter as positive signs for the U.S. economic recovery. Philadelphia Fed President Charles Plosser, an inflation hawk and critic of Fed stimulus spending, also pointed to improving economic conditions.
The U.S. dollar index .DXY fell 0.2 percent, though the greenback rose 0.2 percent against the yen and 0.3 percent against the euro.
Euro zone government bonds moved within narrow ranges, with 10-year German yields slightly firmer at 1.7 percent, while lower-rated Spanish and Italian yields were little changed. <GVD/EUR>
The benchmark 10-year U.S. Treasury note was down 9/32 in price, the yield rising to 2.7087 percent.
Additional reporting by Rodrigo Campos; Editing by Leslie Adler, Dan Grebler, Chris Reese and Andrew Hay