GLOBAL MARKETS-Shares slip, dollar gains as Fed seen less dovish

Rodrigo Campos
Wednesday, 30 Oct 2013 | 5:13 PM ET

* Benchmark Treasury yields tick higher

* World equity markets dip after hitting highest in almost six years

* Gold, euro flatten after posting previous gains

NEW YORK, Oct 30 (Reuters) - A gauge of global stocks dipped after hitting a near six-year high and Treasury bond prices fell on Wednesday while the U.S. dollar strengthened after a slightly less-dovish-than-expected statement from the Federal Reserve.

The Fed extended its support for a slowing U.S. economy, saying it will keep buying $85 billion in bonds per month for the time being.

However, the U.S. central bank dropped a reference to a "tightening of financial conditions observed in recent months" from its list of risks to the outlook and removed a mention of concern over higher mortgage rates, which have fallen since the last meeting.

Markets had priced an extension of the current Fed stimulus probably into 2014 and analysts had warned that any hint that the central bank could change its stance in the near future could prompt a negative market reaction.

"Brace yourself for a December taper," said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin.

"The Fed was dismissive about how higher mortgage rates are affecting the housing recovery. They also removed the statement about their concerns regarding a deterioration in financial conditions. This sets the stage for an easy start to taper in December."

The Dow Jones industrial average fell 61.59 points or 0.39 percent, to 15,618.76, the S&P 500 lost 8.64 points or 0.49 percent, to 1,763.31 and the Nasdaq Composite dropped 21.718 points or 0.55 percent, to 3,930.62.

The S&P 500 earlier hit a new intraday high after closing at a record on Tuesday.

The MSCI world equity index hit an intraday level not seen since January 2008 before slipping in afternoon trade after the Fed statement. It was last down less than 0.1 percent. European shares were flat on the day.


The U.S. dollar erased its losses against the euro and rose against the yen as market participants focused on the details of the Fed statement.

"The fact that the Fed took out the statement on financial market tightness to me seems quasi-hawkish. The Fed is essentially hinting at the fact that they may taper sooner rather than later," said Boris Schlossberg, managing director at BK Asset Management in New York.

"Before the market was expecting tapering in March and now it could very well be December. The dollar is gaining as a result of this."

The dollar index rose 0.1 percent a day after posting its largest advance in more than three weeks.

Dollar sellers had driven the U.S. currency to nine-month lows by the end of last week, taking their lead from a steady decline in U.S. Treasury yields as investors anticipated and extended the period of Fed bond buying.

The Fed statement, however, turned the tables on bonds as well.

The 10-year Treasury note last traded down 9/32 in price to yield 2.5378 percent, after earlier hitting 2.473, near a three-month low of 2.471 percent hit last week.

The euro fell 0.1 percent to $1.3738 after dropping the most in three weeks on Tuesday.

Spot gold flattened after earlier rising the most in a week. Gold was last up less than 0.1 percent at $1,344.56 an ounce.

Brent crude settled up 0.8 percent at $109.86 a barrel as export disruptions in Libya continue to cut supplies to Europe and Asia, while the benchmark U.S. contract fell 1.5 percent to $96.77 a barrel after a bigger-than-expected increase in inventories in the United States.