Asian markets fall more on fears of end to Fed cash

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HONG KONG: Asian markets fell anew Friday, extending a sell-off in line with steep losses on Wall Street after the US Federal Reserve signalled a possible end to its multi-billion-dollar stimulus programme.

The losses are part of a global correction in equities and commodities, which have enjoyed strong rallies since the Fed unveiled its bond-buying scheme, called quantitative easing (QE), in September.

In early trade Tokyo tumbled 1.96 percent before recovering a notch to end the morning session down 0.87 percent. Sydney fell 0.65 percent lower and Seoul gave up 1.75 percent.

Hong Kong lost 1.87 percent and Shanghai fell 1.64 percent, as weak Chinese economic data and liquidity fears added to selling pressure.

Markets have been in turmoil since last month as talk mounted that the Fed would pull the plug on its $85-billion-a-month QE, which was put in place to help kick-start the US economy.

A series of upbeat US indicators added to those concerns and Fed chief Ben Bernanke confirmed dealers’ fears Wednesday when he said the central bank would begin to limit the spending this year if the economy continues to pick up.

He also suggested the whole scheme could be wound up by mid-2014.

Michael Hewson, senior market analyst at CMC Markets UK, called the markets’ reaction “a classic case of perverse logic”, given that Bernanke was clearly signalling stronger US growth.

On Wall Street, the Dow sank 2.3 percent, or 354 points, its largest points loss since November 2011, while the S&P 500 lost 2.5 percent and the Nasdaq tumbled 2.3 percent. The markets had lost around one percent on Wednesday soon after Bernanke’s announcement.

“US shares had been advancing for so long — almost without a serious pullback — that it was almost about time we finally saw one,” Kenichi Hirano, market adviser at Tachibana Securities in Tokyo, told Dow Jones Newswires.

Markets in emerging economies were also badly hit as traders who had ploughed in cash looking for better returns retreated to the safety of the United States.

Manila, which had struck record highs on several occasions this year, was 2.57 percent lower, while Jakarta lost 2.45 percent.

However, the greenback surged on expectations that fewer dollars will be sloshing around financial markets if the Fed rolls back QE. It bought 97.20 yen in early Asian trade, compared with 97.27 yen in New York late Thursday. It was also well up from the 95.50 yen in Tokyo Wednesday before the Fed decision.

The euro traded at $1.3219 in Asia from $1.3223, and 128.46 yen compared with 128.83 yen.

Gold prices have lost around seven percent since Bernanke’s announcement as the stronger dollar makes the precious metal less attractive.

Bullion fetched $1,290.20 per ounce by 0220 GMT, from $1,303.35 late Thursday.

Fresh evidence of a slowdown in China added to risk-aversion, with a closely watched manufacturing survey showing slower activity in June.

Oil prices were mixed. New York’s main contract, light sweet crude for delivery in August, was down nine cents at $95.05 a barrel while Brent North Sea crude for August gained four cents to $102.19.

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