U.S. stocks falter; oil fears spoil China enthusiasm

Tue Jan 19, 2016 4:28pm EST
 
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By Herbert Lash

NEW YORK (Reuters) - U.S. stocks pared gains on Tuesday amid a renewed drop in oil prices, giving up most of an early rally that had been spurred by speculation of more stimulus efforts in China.

Stock markets from Asia to Europe, and initially on Wall Street, rallied to snap a rout this year in equities after Chinese gross domestic product data showed the slowest growth last year in a quarter century.

Shares in Europe rose more than 1 percent, while MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS gained 1.6 percent. But gains on Wall Street were modest, and the Nasdaq closed slightly lower.

The market's euphoria struck Simon Smith, chief economist at online brokerage FxPro, as odd given that weak GDP data are strange reasons to cheer China. Stimulus can only mean more interest rate cuts or reduced reserve requirements, which would weaken the Chinese currency further, he said.

"Most of the time developed markets have been happy to ignore and be totally uncorrelated to the China markets," Smith said.

The major U.S. equity indexes faltered as crude prices traded below $29 a barrel. The International Energy Agency, which advises developed countries on energy policy, said the market should remain oversupplied this year and weaker prices could lie ahead.

The potential for oil to tumble further has scared investors as they're reminded of the financial crisis in 2008 when many financial stocks cratered and their prices never recovered to former levels, Rick Meckler, president of hedge fund LibertyView Capital Management LLC in Jersey City, New Jersey.

"You're just having this testing of what the bottom on energy is and no one knows the impact of a complete collapse the energy industry would have on U.S. equity prices," he said, adding that people are afraid oil prices might collapse.   Continued...

 
Traders work on the floor of the New York Stock Exchange January 19, 2016. REUTERS/Brendan McDermid