January 31, 2014 / 10:01 PM / in 4 years

GLOBAL MARKETS-Wall St comeback fades as emerging market fears linger

* IMF urges global central bank coordination
    * Euro slides after inflation data
    * Commodities lower on stronger dollar, growth fears
    * Chinese New Year holiday closures curb activity

    By Rodrigo Campos
    NEW YORK, Jan 31 (Reuters) - Bargain-hunters on Wall Street
could not stop the bleeding in global shares on Friday as fears
of a protracted capital flight out of emerging markets lingered,
handing a gauge of global equities its worst month in almost two
    U.S. stocks came back in midafternoon trading but sold off
into the close. MSCI's global index, down 4
percent in January, posted its largest monthly decline since May
2012. Emerging market stocks closed the day flat but
were down 6.6 percent for the month, the worst start to a year
since 2009.
    "Given the concerns over the emerging markets and
currencies, I think most traders are tending to close down their
books so that they don't come in on Monday morning with a
negative surprise," said Quincy Krosby, market strategist for
Prudential Financial in Newark, New Jersey.
    Adding to pressure in emerging market currencies from Turkey
to South Africa in previous sessions, the Russian rouble 
and Polish zloty slid Friday against the U.S. dollar.
    Concern about growth in China and other emerging markets
triggered the selling in developing economies late last week,
with focus on countries with internal political and economic
issues, like Ukraine and Argentina.
    The U.S. Federal Reserve's decision this week to continue to
withdraw its monetary stimulus - one of the reasons for the flow
of cash into emerging markets in recent years - compounded the
problems in emerging economies.
    "Pressure has now returned to haunt the key emerging market
currencies whose central banks have so far raised the cost of
borrowing, but pressure valves are also now being tested
elsewhere," said Andrew Wilkinson, chief market analyst at
Interactive Brokers LLC in Greenwich, Connecticut.
    The Dow Jones industrial average fell 149.76 points
or 0.94 percent, to end at 15,698.85, the S&P 500 lost
11.6 points or 0.65 percent, to 1,782.59 and the Nasdaq
Composite dropped 19.248 points or 0.47 percent, to
    The FTSEurofirst 300 index of top European shares
closed down 0.24 percent after dropping nearly 1.7 percent at
the session low.
    In a move seen directly pressuring the Fed and European
Central Bank, the International Monetary Fund urged central
banks to ensure that a financial market rout in the developing
world does not lead to an international funding crunch.
    "I have been saying that the U.S. should worry about the
effects of its policies on the rest of the world," Reserve Bank
of India Governor Raghuram Rajan said on Friday, a day after
slamming what he said was a breakdown in global monetary
    Poland delayed publication of its monthly debt supply plan
until next week due to market turbulence and an overhaul of its
pension scheme, a day after Hungary scrapped a bond sale because
of a sudden spike in rates.
    Euro zone consumer price inflation dropped in January,
bucking market expectations and putting downward pressure on the
single currency. Inflation slowed to 0.7 percent, the same level
as when the ECB, which meets next Thursday, caught markets off
guard with a rate cut in November. Unemployment remained at a
record high. 
    The euro was last down 0.5 percent versus the U.S. dollar,
trading at $1.3487. The euro lost 1.9 percent of its value
versus the dollar during January.
    "The focus on the euro is that we could see a policy
response from the ECB next week," said Shaun Osborne, chief
foreign exchange strategist at TD Securities in Toronto.
    Fund investors worldwide pulled $6.4 billion from emerging
market stock funds in the week ended January 29, marking their
biggest outflows since August 2011, data from a Bank of America
Merrill Lynch Global Research report showed. 
    The grab for safer assets meant the dollar had the
upper hand in the currency market, pressuring commodities
already weakened by the prospects of slower growth.
    U.S. Treasuries prices rose on month-end buying and on
support from safety bids.
    "It's a classic flight to quality," said Priya Misra, head
of U.S. rates strategy at Bank of America Merrill Lynch in New
York. "We're driven primarily by what's happening in emerging
markets and stocks."
    The benchmark 10-year U.S. Treasury note was up
13/32, the yield at 2.6476 percent.
    Gold was caught between the run to safety and the surge in
the greenback, and spot prices edged up less than 0.1
percent. The metal was down 1.9 percent for the week but posted
its first monthly gain since last August. 
    Brent oil fell 1.5 percent and U.S. crude 
dropped 0.8 percent. Copper fell 0.4 percent to set a
monthly drop of 4 percent, the largest since June.
    "The absence of the Chinese market for the next week means
that we may see some further downside on commodities, especially
if we do see the dollar gaining ground," said Tim Radford, of
Sydney-based metals adviser Rivkin.
    Chinese markets were closed for the New Year holiday and
will remain closed into next week.
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