Global shares fall on Fed tapering talk, pound up on BoE

Wed Aug 7, 2013 9:07am EDT
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By Richard Hubbard

LONDON (Reuters) - Signs the U.S. Federal Reserve might soon begin trimming its stimulus program sparked falls in world shares on Wednesday, while a new Bank of England policy lifted sterling by changing expectations for a rate rise.

U.S. stock index futures pointed to Wall Street extending the share selloff, which was triggered when two Fed officials suggested the central bank may reduce the pace of bond purchases as early as next month, depending on economic data. .N <FED/>

"We're going to get tapering, its really a question of when, and not if, and that's why we've seen a decline in (equity) markets," said Michael Hewson, market analyst at CMC Markets.

The comments led to MSCI's main Asian ex-Japan index hitting its lowest levels since mid-July and sent the broader MSCI world equity index .MIWD00000PUS down 0.5 percent to put it on course for its worst day in five weeks.

Europe's broad FTSE Eurofirst 300 index .FTEU3 had also shed 0.1 percent though it was off its lows after data showed German industry output had rebounded in June - further evidence that Europe's largest economy is gaining momentum.

In Britain, central bank governor Mark Carney, in his first policy move since taking over last month, outlined a new framework for setting interest rates, triggering a wave of volatility in London's financial markets.

Carney said UK rates would be kept at a record low of 0.5 percent until unemployment falls to 7 percent, something unlikely for another three years. He also made any move conditional on inflation staying low and the financial system being stable at the time.

Traders reacted to the policy by bringing forward slightly expectations of when the first UK interest rate rise may occur, given the raft of strong economic data in the past few weeks.   Continued...

Workers speak above an electronic information board at the London Stock Exchange in the City of London January 2, 2013. REUTERS/Paul Hackett