Global shares, bonds fall as data fans Fed uncertainty

Wed May 29, 2013 8:54am EDT
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By Richard Hubbard

LONDON (Reuters) - World shares, the dollar and bond prices all fell on Wednesday as signs of strength in the U.S. economy fanned fears the Federal Reserve may soon begin tapering back its massive stimulus program.

In Europe, the FTSE Eurofirst 300 index .FTEU3 of top shares had dropped 1.5 percent by midday, giving back all of the previous day's 1.3 percent gain. U.S. stock futures also signaled a weak start to Wall Street trading. .N .EU

Financial markets have seen a rise in volatility since Fed chairman Ben Bernanke last week suggested the central bank could begin to roll back its $85 billion-a-month fund injection.

Some investors are avoiding taking big positions as they weigh the strength of a nascent recovery in the global economy against the withdrawal of stimulus which has driven some stock markets to record highs.

In fixed income markets, yields on both safer German and U.S. bonds rose along with those from riskier sovereign issuers as nervous investors cut back positions.

"In the current environment no one wants to have big running risks, so if a couple of clients say I'm going to lighten up, boom, you have a big market movement," said Luca Jellinek head of European interest rates strategy at Credit Agricole CIB.

Ten-year German government bond yields were 3.2 basis points higher at 1.49 percent, while the yield on the equivalent U.S. Treasury notes hit a peak of 2.235 percent, its highest since April 2012.

Traders said the weakness in equity markets had encouraged investors to buy the yen, which is seen as a safe haven, sending the dollar down 1.4 percent to a low of 100.96 yen.   Continued...

A man walks through the lobby of the London Stock Exchange August 5, 2011. REUTERS/Suzanne Plunkett