GLOBAL MARKETS-Treasuries yields at 3-month low on Fed; China, Euro bank review hit shares
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* U.S. Treasuries yields lowest in 3 months as tapering seen delayed
* Wall St down after four record sessions for S&P 500 on weak results
* China short-term rates spike boosts demand for dollar, yen, Swiss franc
NEW YORK, Oct 23 (Reuters) - U.S. Treasuries yields fell to the lowest in three months on Wednesday on reinforced expectations that the Federal Reserve is unlikely to reduce its stimulus efforts in the near term, while global equity markets ended their recent winning streak. On Wall Street, the S&P 500 was down after a four-day streak of record highs as shares of Caterpillar and a number of chipmakers tumbled on weaker-than-expected results. European shares snapped a nine-day winning streak, hit by plans for a tougher stress test for euro zone banks, as well as weak earnings numbers and forecast downgrades in other sectors. The FTSEurofirst 300 index lost 0.6 percent. Global equity markets weakened as China's primary short-term money rates rose on concerns the People's Bank of China may tighten its cash supply to address inflation risks, which could hurt growth in the world's second-largest economy. Shanghai shares fell 1.3 percent. In the U.S. Treasuries market, the focus was largely centered on next week's Federal Reserve policy meeting, where the U.S. central bank is expected to keep its $85 billion a month bond purchase program unchanged. "The Fed is kind of handcuffed from doing any tapering; the consensus is pushing it out to March. The weak (jobs) number supports it," said Sean Murphy, a Treasuries trader at Societe Generale in New York. A Reuters poll conducted on Tuesday showed 9 of 15 U.S. primary dealers see the Fed starting to reduce bond purchases in March, with many of them blaming Washington's fiscal impasse for a "significant" impact on the Fed's timing. The benchmark 10-year U.S. Treasury note was up 6/32, the yield at 2.4908 percent.
TOUGHER BANK HEALTH TESTS The STOXX Europe 600 Banks index dropped 2.1 percent for its weakest day in two months after the European Central Bank said it would review the quality of a broader-than-expected range of assets held by top regional lenders next year. That may result in them having to raise fresh capital. The Spanish IBEX and Italian FTSE MIB recorded their worst sessions since August. On Wall Street, Caterpillar Inc was one of the biggest decliners on the S&P, slumping 6 percent to $83.83 after the heavy-equipment machinery maker cut its full-year outlook for a third time. The Dow Jones industrial average was down 58.81 points, or 0.38 percent, at 15,408.85. The Standard & Poor's 500 Index was down 8.48 points, or 0.48 percent, at 1,746.19. The Nasdaq Composite Index was down 23.78 points, or 0.61 percent, at 3,905.79. MSCI's world equity index, which tracks shares in 45 countries, fell 0.6 percent.
CHINA CONCERNS The dollar, yen and Swiss franc all rose on Wednesday after a spike in China's short-term money-market interest rates drove risk aversion, driving bids for the three safe-haven currencies. China's primary short-term money rates rose in a delayed reaction to signals from regulators that they are considering tightening liquidity to tamp rising inflationary pressure. A policy adviser to the People's Bank of China told Reuters on Tuesday that the authority may tighten cash conditions in the financial system to address inflation risks. Concerns about soft U.S. jobs data for September, which appeared to rule out a cut in U.S monetary stimulus before next year and caused a plunge in the dollar, took a back seat as Chinese money market rates climbed to levels not seen since July. "The weight of a weak U.S. non-farm (payroll data released on Tuesday) is surpassed by rising risk aversion on concerns over China's money market. Profit-taking takes hold," said Camilla Sutton, chief currency strategist at Scotiabank in Toronto. The dollar rose against riskier commodity-linked currencies such as the Australian and New Zealand dollars. The Aussie dollar fell 0.8 percent versus the greenback to US$0.9629 , while the New Zealand currency dropped 1.5 percent to US$0.8385. The yen was also in demand, with the dollar down 0.9 percent at 97.24 yen and the euro 0.8 percent weaker at 134.08 yen. The Swiss franc also rose, as the dollar slipped 0.4 percent to 0.8912 franc and the euro fell 0.3 percent to 1.2290 francs >EURCHF=>. In commodities trading, U.S. oil prices fell, extending one of the year's sharpest sell-offs, after government data showed a surprisingly large increase in crude supplies. U.S. crude settled down $1.44 at $96.86 while Brent crude fell $2.17 to $107.80 a barrel.