Rally on Fed talk fades, dollar struggles

Mon Oct 28, 2013 9:11am EDT
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By Richard Hubbard

LONDON (Reuters) - World share gains stalled near a six-year high and the dollar steadied on Monday as a rally built on expectations the U.S. Federal Reserve will stick with its loose monetary policy at a meeting this week ran out of steam.

A rise in U.S. stock index futures signaled further gains were possible when Wall Street opened though this was likely to depend on more encouraging news in quarterly corporate earnings report with tech bellwether Apple (AAPL.O: Quote) in the spotlight.

Most riskier assets rose sharply last week as the uncertainty caused by this month's U.S. government shutdown and a mixed batch economic data convinced many the Fed would delay any move to begin trimming its stimulus into next year.

"The events in Washington have all but cemented the idea that tapering will be a 2014 event." said Adam Cole, head of G10 FX strategy at RBC Capital Markets.

But with the dollar trading near its lowest levels of the year against most major currencies, the euro near a two-year high and many major global share indexes near record highs, investors are wary of pushing prices higher.

"We are less bullish in the short term than we were over the past few months. However, we do not envisage a fundamental change of direction," J.P.Morgan Cazenove wrote in a note.

Much will depend on what the Fed has to say when it wraps up a two-day rate setting meeting on Wednesday when it is widely expected to leave its $85 billion monthly bond buying program unchanged.

"It's the first Fed meeting since the government shutdown in the U.S. so any clues on when they may potentially taper will be welcomed by the market," said Greg Matwejev, director of FX Hedge Fund Sales and Trading at Newedge said.   Continued...

An office worker walks past the board of the Australian Securities Exchange building displaying its logo in central Sydney April 5, 2013. REUTERS/Daniel Munoz