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World stocks sink on fear Fed will trim stimulus

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SARAH DiLORENZO | October 31, 2013 05:41 AM EST | AP

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PARIS (AP) — Fears that the U.S. Federal Reserve bank will begin cutting its stimulus to the American economy sooner than expected spooked world markets on Thursday, driving shares down.

The Fed's announcement that it would maintain its $85 billion monthly bond purchasing scheme was widely expected, and cheered, by investors. But the bank's economic outlook was rosier than anticipated and could indicate that it will begin to reduce those purchases — a process known as tapering — soon.

"The reason the markets are cautious today is because officials threw a spanner in the works when they hinted that tapering could occur earlier than many investors thought," said Shavaz Dhalla, a financial trader with Spreadex. "Policy officials argued that advancements in household spending as well as investments were encouraging despite a struggling housing market.

The Fed no longer expressed concern, as it did in September, that higher mortgage rates could hold back hiring and economic growth. And its statement made no reference to the 16-day government shutdown, which economists say slowed growth this quarter. Some analysts said that suggests tapering could begin early next year.

In Europe, France's CAC-40 was down 0.3 percent to 4,263, while the DAX in Germany dropped 0.2 percent to 8,988. Britain's FTSE index of leading shares pulled back 0.4 percent to 6,750.

Wall Street also looked set to open lower. Dow Jones futures were down 0.3 percent to 15,514, while futures for the broader S&P exchange fell 0.4 percent to 1,755.

Earlier, markets retreated in Asia. Japan's Nikkei 225 lost 1.2 percent to 14,327.94 and Hong Kong's Hang Seng was off 0.4 percent at 26,206.37. China's Shanghai Composite shed 0.9 percent to 2,141.61 and Seoul's Kospi lost 1.4 percent to 2,030.09. Benchmarks in Jakarta, Singapore, Taiwan and Malaysia also fell.

Benchmark oil also fell, dropping 17 cents to $96.60 a barrel in electronic trading on the New York Mercantile Exchange. Energy prices typically drop when investors are worried that the world economy might slow.

The U.S. central bank's cheap money policy has underpinned stock markets worldwide for several years and has been credited with helping the world's largest economy to recover. If the U.S. starts to falter again, it will have an effect on the recovery of economies around the world.

The euro fell 0.2 percent to $1.3699.

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Associated Press writer Eileen Ng in Kuala Lumpur, Malaysia, contributed.