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By Jamie McGeever and Jessica Mortimer
LONDON, Nov 7 (Reuters) - Daily spot foreign exchange trading volumes on Thomson Reuters dealing platforms fell in October, reflecting a broad decline in turnover across the world's largest financial market, company data showed on Thursday.
The decline in volume follows the Federal Reserve's surprise decision not to start withdrawing its monetary stimulus, and comes against the background of the global investigation into alleged FX manipulation rates.
The average $97 billion traded across Thomson Reuters' main trading services, including Dealing and Matching, was the lowest since the data series began almost four years ago in January 2010.
Average daily spot volumes were $97 billion in October, down 11.8 percent from $110 billion in September and down 19.1 percent from $120 billion the same month last year.
On FXall, the electronic foreign exchange platform purchased by Thomson Reuters last year, average daily volumes fell 4.5 percent to $106 billion in October from $111 billion in September. Volumes were up 12.8 percent from October 2012 when they were at $94 billion.
Earlier this week, EBS, which competes with Thomson Reuters in the FX dealing business and is owned by ICAP, said volumes fell 5 percent to $77 billion in October from $81.2 billion in September and were 17 percent down on the year.
EBS is the leading liquidity provider for the euro , the yen and the Swiss franc.
Thomson Reuters platforms provide more liquidity for other currencies such as the British pound and the Australian and Canadian dollars.
"The more important factor for the reduction in volume recently was the Fed shocking the markets, forcing investors to lose confidence in their read of the Fed," said one hedge fund manager.
The Fed was widely expected to announce in September it would begin withdrawing its $85 billion a month bond-buying stimulus, perhaps by as little as $5 billion or $10 billion.
But it chose to delay the so-called "taper", citing concerns about the rise in market-based interest rates over the summer and uncertainty that the economic recovery is strong enough to warrant such a move.
This surprised most market participants and raised doubts about the path for U.S. monetary policy. The volatile and choppy trading conditions in the following weeks helped depress market volumes, not just in FX.
Average daily traded volume on Britain's FTSE 100 stock market was 6 percent lower in October than the month before.
And although there was a spike in October, traded volume in German Bund futures contracts had been falling for the previous four months. October's daily average was still 25 percent down from May.
On top of that, banks are facing tighter regulation in general, such as being forced to hold more capital, which makes them less willing to take risks.
There's little direct evidence the ongoing global probe into allegations of currency rate rigging is hitting FX trading volumes, although it's something that market participants are sensitive to.
"There is a new theme in the markets, and it's regulatory intervention," said one London-based portfolio manager at a firm with over $250 billion of assets under management.
"We've not got to the stage yet where volumes have dropped massively on (this) ... but there's definitely a reticence on parts of the banks to (trade) more than they have to," he said.
Thomson Reuters and EBS declined to break down the daily average flow data. This makes it difficult to ascertain whether activity surrounding any of the daily fixings - which serve as benchmark rates in the self-regulated currency market - was affected specifically.
A clutch of traders at some of the world's biggest banks have been put on leave or suspended amid a growing global probe into potential manipulation of the $5.3 trillion-a-day foreign exchange market.
Barclays, Citigroup, Standard Chartered , JPMorgan, UBS and Royal Bank of Scotland have all benched traders as regulators in the United States, Europe and Asia investigate whether benchmark foreign exchange rates have been manipulated.
Alan Wilde, currency and bond portfolio manager at Barings Asset Management, which has $58 billion of assets under management, said any observations about falling volume and the fixings probe is "just conjecture".
"It has been a tough year for investors to make money from FX and this reduced appetite to take positions will have an impact on dealing volumes and hence liquidity," he said.
The departures leave big holes at many FX desks in London, the beating heart of the global FX market, accounting for some 40 percent of turnover.