Reuters: US Dollar Report: GLOBAL MARKETS-Stocks lower after Fed meeting; dollar rallies

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GLOBAL MARKETS-Stocks lower after Fed meeting; dollar rallies Aug 1st 2012, 19:48 Wed Aug 1, 2012 3:48pm EDT * Fed stops short of offering new monetary stimulus * ECB announcement looms, risk of disappointment high * China, euro zone, U.S. factory data show signs of slowing By Wanfeng Zhou NEW YORK, Aug 1 (Reuters) - Global stocks edged lower and the dollar rallied on Wednesday after the Federal Reserve stopped short of offering new monetary stimulus even as it acknowledged that the U.S. economic recovery has lost momentum so far this year. Equities and the euro had gained lately on increased expectations central banks in the United States and Europe would take aggressive steps to stimulate their respective economies and contain a spreading debt crisis in Europe. The Fed said after a two-day meeting it was prepared to do more to support an ailing economy but it disappointed some market expectations by taking no new action. Many economists had expected the Fed to push back its guidance for when it might start to raise interest rates but it stuck with its "late-2014" language. Attention now turns to a European Central Bank decision on Thursday. President Mario Draghi heightened speculation of further bank purchases of Italian and Spanish bonds when he said last week he would do "whatever it takes to preserve the euro." "Kind of a disappointment. The market was hoping for more news on (quantitative easing) or a longer time frame for not raising rates," said Nicholas Colas, chief market strategist at the Convergex Group in New York. "It was very status quo at a time when people are saying the economy is getting worse," he said. "We have to now hope that the ECB will come in with aggressive moves." Fed officials described the economy as having "decelerated somewhat," a change of tone from its previous assessment in June when it said the economy had been "expanding moderately." Policymakers also reiterated their disappointment with high unemployment. The MSCI world equity index fell 0.2 percent to 315.46. On Wall Street, the Dow Jones industrial average was up 10.29 points, or 0.08 percent, at 13,018.97. The Standard & Poor's 500 Index was up 1.13 points, or 0.08 percent, at 1,380.45. The Nasdaq Composite Index was down 5.01 points, or 0.17 percent, at 2,934.51. "They did absolutely nothing here. It suggests there is a lot of internal debate going on in the Fed," said Steven Ricchiuto, chief economist at Mizuho Securities in New York. Earlier, a computer glitch at market maker Knight Capital caused a surge in volume in about 150 share listings at the market's open. Knight said in a statement that it was advising traders to execute their trades elsewhere, and the company's shares were hammered, falling 31.3 percent to $7.10, at least a seven-year low. European shares ended up 0.5 percent. Investors shrugged off data showing the U.S. private sector added 163,000 jobs in July, topping economists' expectations of 120,000. The report from payrolls processor ADP came two days ahead of Friday's more important monthly government nonfarm payrolls report for July. Also on Wednesday, surveys showed U.S. and euro zone factory activity struggled again in July while Chinese manufacturing fell to an eight-month low, as economies around the world showed signs of slowing. In government debt trading, the benchmark 10-year U.S. Treasury note was down 19/32 in price, with the yield at 1.5325 percent. ECB LOOMS The dollar rallied as the Fed offered few clues about near-term policy easing. The euro fell 0.6 percent to $1.2233 . The dollar gained 0.5 percent to 78.48 yen. The dollar index rallied 0.5 percent to 83.077. But analysts said further dollar gains should be limited ahead of the ECB policy announcement on Thursday. "I do not expect follow-through U.S. dollar buying given the proximity to the ECB meeting where policy expectations are far from calm," said Alan Ruskin, head of G10 FX strategy at Deutsche Bank in New York. The risk of ECB disappointment is high. Spanish bond yields could jump again and stocks and the euro could sell off if the ECB does not deliver, analysts say. "On the ECB, the uncertainty is very high," said Jens Nordvig, global head of FX strategy at Nomura Securities in New York. "Some additional commitment to support sovereign bond markets is highly likely, but how firm and how conditional this commitment will be is far from clear." One of the biggest critics of the ECB buying more government bonds, Bundesbank President Jens Weidmann, said governments overestimated the capacity of the central bank and placed too many demands on it. Brent crude settled at $105.96 a barrel, gaining $1.04. U.S. crude settled at $88.91, gaining 85 cents. Prices drew support from data showing a bigger-than-expected drawdown in U.S. crude stockpiles last week. Spot gold fell to $1,601.60 an ounce. Link this Share this Digg this Email Reprints

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