April 3, 2012 / 9:00 PM / 8 years ago

GLOBAL MARKETS-Fed minutes drive stocks, gold down

* Fed minutes weigh on stocks, gold

* Dollar up 1 pct vs yen; bond prices drop

* Brent, U.S. crude prices fall

By Caroline Valetkevitch

NEW YORK, April 3 (Reuters) - World stocks fell and gold prices dropped 2 percent o n T uesday as minutes from the latest U.S. central bank meeting showed policymakers may be less willing to launch further economic stimulus.

The dollar rose 1 percent against the yen, while safe-haven bonds slid.

Federal Reserve policymakers, in their March meeting minutes, noted recent signs of slightly stronger growth but remained cautious about a broad pick-up in U.S. economic activity.

Still, the minutes suggested the appetite for another dose of stimulus via quantitative easing, so-called QE3, has eased.

The MSCI world equity index dropped 0.4 percent, while the benchmark S&P 500 had its worst day in a week.

“There have been signs of strength in manufacturing and employment. That has the Fed taking a wait-and-see approach on the sidelines, which is certainly a disappointment for a lot of investors,” said Eric Teal, chief investment officer of First Citizens Bancshares in Raleigh, North Carolina, who helps oversee $21 billion in assets.

Supportive central bank policies, along with improving economic data, helped fuel S&P 500 gains of 30 percent since October.

The Dow Jones industrial average fell 64.94 points, or 0.49 percent, to end at 13,199.55. The Standard & Poor’s 500 Index was down 5.66 points, or 0.40 percent, at 1,413.38, retreating from a four-year high.

The Nasdaq Composite Index was down 6.13 points, or 0.20 percent, at 3,113.57.

U.S. stock sectors tied to growth were the big losers of the day, with energy shares down 1 percent and materials off 0.9 percent, extending losses after the release of the Fed minutes, though they subsequently rebounded. The day’s strongest performer, the utilities sector, is considered a defensive play.


Spot gold was down 2.1 percent at $1,642.06 an ounce.

Gold has now fallen below its levels in late January, when the Fed said it would keep interest rates near zero until at least late 2014 and investors believed more easing was likely.

More Fed stimulus would be tantamount to printing money, and diminished expectations of QE3 buoyed the dollar against the yen.

The dollar last traded at 82.94, up 1.1 percent, against the yen, recovering from a low at 81.54 yen.

Strong correlations between U.S. Treasury yields and the dollar/yen currency pair suggest that U.S. interest rates and Fed monetary policy will decide whether the USDJPY continues its recent gains.

In the U.S. bond market, benchmark 10-year notes were last down 29/32 in price to yield 2.28 percent, up from around 2.18 percent before the minutes were released.

The FOMC minutes suggested there may be less of a chance the Fed will buy more bonds to hold down long-end rates. This led some traders to get out of earlier bets that the Fed is ready to buy more Treasuries after the $400 billion Operation Twist program is set to end in June.

“The (Fed) committee’s discussion was in line with my view that the Fed has a fairly high bar for implementing additional easing. That conclusion is what the markets are reacting to with the dollar strengthening, bonds down, stocks down and gold down a bit,” said Brian Jacobsen, chief fixed-income strategist for Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin.

In the oil market, Brent and U.S. crude futures also fell on the Fed news, with Brent May crude down 57 cents, or 0.45 percent, to settle at $124.86 a barrel.

Spain’s financial woes weighed on European equities.

Spain’s IBEX shed 2.7 percent, underperforming the pan-European FTSEurofirst 300, which fell 1.1 percent to 1,072.87.

Spain’s debt will jump to its highest level since at least 1990 this year as the economy sinks into recession and borrowing costs rise, a document detailing the country’s 2012 budget showed. Spanish 10-year bond yields up to 5.43 percent.

The number of registered Spanish jobless also rose for the eighth straight month in March as companies from all sectors continued to lay off staff.

Spain’s Banco Santander and BBVA fell as much as 4.5 percent, while Italy’s Unicredit and Brussels-listed KBC Groep shed up to 5.4 percent.

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