By Jeremy Gaunt, European Investment Correspondent
LONDON (Reuters) - Investors sent stocks lower and sold the dollar on Tuesday ahead of a Federal Reserve meeting that is expected to cut interest rates again as well as hint at future unorthodox monetary policies to refloat the U.S. economy.
Oil was trading below $45 but was supported by expectations that OPEC will agree its largest supply cut ever later in the week.
The Fed is widely expected to cut interest rates to just 0.5 percent or lower. Futures markets are setting a two-thirds possibility of a 75 basis points cut to 0.25 percent.
With rates approaching zero, market players are now looking for clarity on what policy measures the Fed will consider using, such as outright purchases of financial assets, to help pull the economy out of a sharp recession.
Buying Treasury bonds, for example, would drive down yields even further.
"While an additional rate cut by the U.S. Fed is widely expected, market reaction to the cut is still very much uncertain, as another rate cut means the Fed is left with one less card to offer," said Lim Tae-gun, a market analyst at Daewoo Securities in Seoul.
Equity markets were generally lower, with MSCI's main stock index .MIDW00000PUS struggling to stay in positive territory for the month. Such a gain would be the first since May for the index, which is down more than 45 percent this year.
The pan-European FTSEurofirst 300 was off 0.5 percent. Earlier, Japan's Nikkei average .N225 closed down 1.12 percent.
In company news later in the day, Goldman Sachs (GS.N: Quote, Profile, Research, Stock Buzz) is expected to report a quarterly loss of as much as $2.5 billion, hit by the falling value of many of its investments.
OPEC TO CUT
Oil steadied after dropping 4 percent on Monday on persistent worries of a deepening economic slump. The weaker dollar, which tends to support commodities, also lent a hand.
U.S. light crude for January delivery was barely changed at $44.44 a barrel.
Oil dropped to a four-year low of $40.50 on December 5 -- more than a $100 slide from its July all-time high -- as global economic turmoil depresses demand in large consumer nations such as the United States and Japan.
"OPEC could achieve limited success on Wednesday. They might do enough to stop prices from sliding further," said UBS economist Jan Stuart.
In an attempt to build a floor under prices, Organization of Petroleum Exporting Countries ministers, who meet on Wednesday in Algeria, are calling for the largest output cuts ever to combat shrinking demand and bulging inventories.
On foreign exchanges, the dollar fell broadly ahead of the likely U.S. rate cuts, at one point hitting a two-month low against the euro.
The euro was flat at $1.3705 after earlier rising as high as $1.3738 on trading platform EBS, the highest since mid-October.
The dollar dropped 0.5 percent to 90.27 yen, above a 13-year low of 88.10 yen hit on Friday.
The interest rate-sensitive two-year Schatz euro zone government bond yield was down 5 basis points at 2.109 percent.
(Editing by Mike Peacock)
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