European stocks mostly drop before Fed decision

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LONDON: Europe’s main stock markets mainly fell on Wednesday, with traders on tenterhooks before the outcome of the US Federal Reserve’s latest monetary policy gathering, analysts said. In midday deals, London’s benchmark FTSE 100 index dipped 0.27 per cent to stand at 6,356.72 points.

Frankfurt’s DAX 30 added 0.18 per cent to 8,244.88 points and in Paris the CAC 40 shed 0.24 per cent to 3,851.18 compared with Tuesday’s closing levels.

Madrid’s IBEX 35 index retreated 0.39 per cent to 8,148.30 points.

Investors have been speculating about when the Fed will start tapering off its $85 billion-a-month bond-buying programme, known as quantitative easing and which is credited with helping push global equities to recent highs.

Global equities and currencies have been sent into turmoil in recent weeks on expectations that Fed chairman Ben Bernanke will start turning off QE.

Investors are therefore anxious to see what Bernanke will say Wednesday at his traditional post-meeting press conference.

“Chairman Bernanke’s question-and-answer session is being viewed as a make or break moment for equity market momentum, though whether we will actually garner any clarity on the Fed’s timeframe for tapering their stimulus programme remains to be seen,” said analyst Matt Basi at traders CMC Markets.

The Fed chief has roiled markets after last month telling Congress that the US central bank could scale back its QE measures soon, if economic conditions improved.

“Attention is firmly on the Fed’s monetary policy decision and press conference later, with investors clearly concerned that any hints at tapering in the coming months could mark the end of the rally,” said analyst Craig Erlam at traders Alpari.

“The reaction in the equity markets over the past month or so, since Bernanke suggested that tapering could begin in the next few months, has clearly highlighted that the Fed’s QE program is having a much greater impact on the markets than some would like to admit,” he added. “If Bernanke hints at tapering in the coming months again today, we could see further selling in the weeks and months ahead.”

In Paris, the price of shares in telecom-equipment maker Alcatel-Lucent jumped 5.96 per cent to 1.49 euros after the company announced a big restructuring programme.

In foreign exchange deals on Wednesday, the European single currency eased to $1.3391 from $1.3396 late in New York on Tuesday.

The dollar decreased to 95.05 yen from 95.37 yen on Tuesday.

On the London Bullion Market, the price of gold edged up to $1,368 an ounce from $1,366.75 on Tuesday.

Asian markets were mostly lower on Wednesday, with focus on the Fed, but Tokyo enjoyed another rally as data showed a surge in exports thanks to a weaker yen.

Tokyo stocks closed 1.83 per cent higher on Wednesday, after official data showed Japan’s exports soared in May thanks to the weak yen.

Shanghai shares lost 0.73 per cent in value, Hong Kong dropped 1.13 per cent and Seoul shed 0.65 per cent.

Wall Street however posted gains overnight, with investors betting the Fed would stop short of reeling in its QE bond-buying programme.

New York’s Dow Jones Industrial Average climbed 0.91 per cent.