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FTSE swerves sharply lower as rally fails

by Chris Marshall on Jan 29, 2014 at 14:41

FTSE swerves sharply lower as rally fails

(UPDATE) Global share markets turned sharply lower on Wednesday afternoon as a brief rally gave way to jitters about the scaling back of US stimulus and the impact on emerging markets.

Even another surprise interest rate rise by a major emerging market’s central bank – this time in South Africa, following hikes from India and Turkey – couldn’t lift sentiment.

These central banks are concerned about the weakness of their currencies and the risk that inflation is set to rise uncontrollably.

As well as strength on Asian and European share markets this morning, Turkey’s lira had rallied after the country’s rate hike. But those gains were soon lost as sentiment turned and emerging markets currencies sold off again: South Africa's rand fell 2.4% while Turkey's lira dropped 0.7% in volatile trade.

The US Federal Reserve is today largely expected to announce another step in the ‘tapering’ of its asset purchase scheme. The scaling back of US quantitative easing began in December, when the Fed announced a $10 billion reduction in its monthly QE splurge. Economists expect another $10 billion to be cut back, meaning monthly purchases fall to $65 billion.

On share markets the US Dow opened down 1% at 15,774. Europe’s Eurofirst 300 was trading 1.4% lower.

In London, the FTSE 100 fell 1.1% to 6,496, marking a decline of nearly 4% so far this year. Only half a dozen blue chip shares were in the black, among them Antofagasta and Anglo American, the mining companies that this morning pleased investors with production updates.

Perceived safe havens were in demand, with the gold price rising nearly 1% to $1,269 per ounce.

Global shares rally as emerging market fears abate (09:30)

An aggressive defensive manoeuvre from Turkey's central bank, following India with an interest rate hike, helped global markets towards a second day of gains on Wednesday, at least temporarily overriding angst about a potential reduction of the US stimulus after a two-day Fed meeting.

Britain’s FTSE 100 rose 0.6% to 6,612, matching gains across Europe and following on the heels of a bullish trading session in Asia; a relief rally that was prompted in part by Turkey’s emergency rate hike designed to battle inflation and a weak lira.

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