Asian stock markets fall after Federal Reserve official says next step is to scale back

BANGKOK – Asian stock markets fell Wednesday as signs the U.S. Federal Reserve might scale back its super-loose monetary policy caused investors to pull out of equity investments.

Comments from Fed official Esther George, who said Tuesday she supported slowing the pace of Fed bond purchases “as an appropriate next step,” raised expectations that the central bank might start winding down its aggressive purchases of government bonds.

The Fed’s program is a big plus for stock markets: Some $85 billion a month in purchases have helped keep interest rates low and caused investors to shift out of bonds and into stocks.

Japan’s Nikkei 225 index fell 0.3 per cent to 13,499.26. Hong Kong’s Hang Seng lost 0.7 per cent 22,137.80. South Korea’s Kospi fell 0.8 per cent to 1,973.13. Australia’s S&P/ASX 200 dropped 1.1 per cent. Benchmarks in Singapore, Indonesia and the Philippines fell. Taiwan’s rose. Mainland Chinese shares were mixed.

Analysts were preaching caution ahead of May data on U.S. service industries, which are the largest component of the economy by far.

DBS Bank Ltd. in Singapore said an improvement in the Institute for Supply Management’s service sector index would be surprising, especially in light of this week’s manufacturing report that showed U.S. factory output contracting in May.

“The manufacturing measure has fallen three months in a row. The service sector version is steadier and slower moving but it doesn’t typically buck the trend,” DBS analysts said in a market commentary.

Most important will be Friday’s jobs report for May. The figures are usually the U.S. economic release with the greatest market impact.

It’s also a big week in Europe, with the European Central Bank meeting to discuss the region’s ailing economy and whether anything more needs to be done to get it growing again. The latest expectation in the markets is that the ECB will refrain from announcing any big new measures Thursday.

Benchmark oil for July delivery was up 45 cents to $93.76 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.48 to close at $93.45 a barrel on the Nymex on Tuesday.

In currencies, the euro rose marginally to $1.3084 from $1.3082 late Tuesday in New York. The dollar rose to 100.08 yen from 100.05 yen.


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