Shares, bonds fall as investors go on Fed watch

World equities and bonds fell overnight as investors await signals from the US Federal Reserve, perhaps later this week, about plans to pare its bond-buying program.

First, on Wednesday in the US, minutes of the latest Fed meeting, held July 30-31, will be released. Bond watchers expect the Fed to pare the monthly target of purchases by US$15 billion to US$70 billion, in keeping with recent comments by Fed Chairman Ben Bernanke that the central bank wants to ease back this year and end bond buys by mid 2014.

But the Fed minutes aren't all that's on deck. Investors also will be eying this week's annual meeting of global central bankers and policy makers in Jackson Hole, Wyoming, for fresh indications about plans for monetary stimulus in the world's largest economies.

"The focus this week is on what's going to happen with the Fed minutes and at Jackson Hole," Niels From, chief analyst at Nordea Bank in Copenhagen, told Bloomberg News.

In late afternoon trading in New York, the Dow Jones Industrial Average fell 0.25 per cent, while the Standard & Poor's 500 Index shed 0.30 per cent. Declines in shares of JPMorgan Chase and Alcoa weighed on the Dow. The Nasdaq Composite Index rose 0.16 per cent, helped by further gains in Apple.

US Treasuries fell, pushing yields on the benchmark 10-year bond four basis points higher to 2.86 per cent. German government bond yields also are rising, having touched 1.92 per cent overnight.

In Europe, the Stoxx 600 Index ended the day with a 0.5 per cent drop from the previous close. Germany's DAX declined 0.3 per cent, the UK's FTSE 100 Index fell 0.5 per cent, while France's CAC 40 dropped 1 per cent.

Germany's central bank, the Bundesbank, is forecasting steady growth for the nation after a strong second quarter where the economy expanded 0.7 per cent.

Commodities including copper, silver and gold also fell amid expectations that a cutback in Fed stimulus might dampen demand for raw materials. Three-month copper on the London Metal Exchange closed 1.3 per cent weaker at US$7,305 a tonne, according to Reuters.

In a paper released today, the Fed said large banks have more work to do to shore up their capital planning processes. In particular, the Fed said firms need to improve "their accounting for risks" to specific business activities.

The Fed will conduct its next review of the strength of US banks later this year. This year the Fed will review the finances of 30 banks, 18 of which participated earlier and 12 additional ones with more than US$50 billion in total assets.

- BusinessDesk

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