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Finance

Markets dive in response to Federal Reserve announcement

Financial markets around the globe have taken a dive after the US Federal Reserve chief's announcement he considered phasing out asset buying by next year. Shares, currencies and commodities crumbled as a result.

When Federal Reserve Chairman Ben Bernanke heralded a likely end to the lax policy of bond buying and stimulus spending, Wall Street traders were quick to see stock value losses across the board.

The pan-European FTSEurofirst 300 index was down by 1.5 percent in early Thursday trading, with Germany's blue-chip Dax-30 losing almost 2 percent shortly after trading started in Frankfurt.

Investors were also spooked in Asia on Thursday, with shares and currencies going down as many rushed to unwind crowded trades in emerging markets.

MSCI's broadest index of Asia Pacific shares outside Japan dropped by 3.5 percent, its biggest single-day fall since November 2011. Australia's bourse tumbled 2.3 percent, while South Korean stocks lost 2.1 percent in value, marking a seven-month low.

Back to normality?

Another reason for the dive was China's announcement it was turning the screw on credit even as factory activity in the world's second largest economy hit a nine-month high. But the initial catalyst for the gloom on financial markets surely was Bernanke's wish to end the Fed's free-money policy.

Fed hint on stimulus spending

"Bernanke was more explicit than markets had expected," Credit Agricole economist Yuji Saito told Reuters news agency.

Julius Baer analyst Mark Matthews put a positive spin on Bernanke's announcement. "The world we've got accustomed to in the last ten years of crisis and central bank intervention is metamorphosing into one of growth and less intervention."

But unlike the Fed, the European Central Bank looked unlikely to follow suit any time soon. On the contrary, ECB President Mario Draghi said earlier this week he didn't rule out a further lowering of the bank's benchmark financing rate which is already at a record-low 0.5 percent.

hg/msh  (Reuters, dpa)

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