Fed unease sends shares to one-month low, emerging markets suffer

Tue Aug 20, 2013 8:45am EDT
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By Marc Jones

LONDON (Reuters) - World shares slid to their lowest level in more than a month and emerging markets fell for the fourth straight day on Tuesday, as concerns about an expected cut in U.S. stimulus and related gains in bond yields escalated.

U.S. stock index futures, however, signaled a steadier tone ahead on Wall Street - after major indexes posted their longest losing streaks of the year on Tuesday - helping drag many markets off their lows. .N .DJI

Europe's main stock markets .FTEU3 were down 0.8 percent by midday, near a two-week low, while emerging stocks .MSCIEF fell 1.3 percent to trade at a five-week low, though both indexes had recovered slightly during the morning session.

The selling has been the result of rising expectations that the U.S. Federal Reserve will start winding down its $85 billion-a-month support program next month. The prospect has driven up bond market borrowing costs, which in turn has sparked a move away from the riskier assets that have soared over the last few years thanks to the extra liquidity.

The pressure is unlikely to be alleviated ahead of Wednesday's release of minutes from the most recent Fed meeting, which investors will be scouring for fresh hints on when the process may begin. <US/>

Ahead of their release, though, the relentless rise in U.S. government bonds yields, which sent benchmark 10-year debt to a two-year high of 2.9 percent on Monday, has slowed down slightly. The benchmark 10-year note yield had edged down to 2.88 percent ahead of the U.S. start.

As has been the recent pattern, German government bonds, Europe's equivalent benchmark, moved in lock step with yields, easing to 1.87 percent after topping 1.9 percent a day earlier.

On European share markets, a 10.8 percent jump to 19.40 points in the Euro STOXX 50 Volatility Index indicated uncertainty over the near-term outlook, though the measure remained below its 2013 peak of 26.80 points.   Continued...

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