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European shares slip after Fed stimulus, EU bank deal

Roland Jackson
A stock broker watches prices charts at the Frankfurt stock exchange on September 6, 2012. Europe's main stock markets slid on Thursday as investors digested more US Federal Reserve monetary easing and an EU deal to give the European Central Bank (ECB) supervisory powers over the banking sector.

Europe's main stock markets slid on Thursday as investors digested more US Federal Reserve monetary easing and an EU deal to give the European Central Bank (ECB) supervisory powers over the banking sector.

Sentiment was soothed somewhat as the European Union also cleared long-delayed bailout funds needed to avert a potentially disastrous Greek debt default.

When European markets closed, London's FTSE 100 index of top companies was 0.27 percent lower at 5,929.61 points, Frankfurt's DAX 30 index had fallen 0.43 percent to 7,581.98 and in Paris the CAC 40 had slipped by 0.10 percent to 3,643.13 points.

"Soft day for European financial markets, as the Fed?s policy meeting was a bit of a double edged sword for markets and economic data from the US later in the afternoon was a mixed bag, doing little to help upside momentum," commented ETX Capital Market analyst Ishaq Siddiqi.

CMC Markets senior analyst Michael Hewson said earlier: "Despite a fresh round of Fed easing measures and agreement on EU banking oversight by way of the ECB, equity markets appear somewhat underwhelmed -- suggesting that in part an expectation of these measures was probably already in the price."

In foreign exchange activity, the European single currency edged up to $1.3084 from $1.3075 late in New York on Wednesday. Gold prices dipped to $1,692.75 an ounce on the London Bullion Market, from $1,716.25.

In midday New York trade, the Dow Jones Industrial Average had lost 0.21 percent, while the broad-market S&P 500 was off by 0.29 percent and the Nasdaq Composite was down 0.20 percent.

The "inability to rally after the Fed announcement yesterday has taken some steam out of the market, which has been in rally mode since mid-November," said Patrick O'Hare of

The Fed said overnight that it would replace its "Operation Twist" bond swapping programme with $45 billion a month in straight bond buys, on an open-ended basis. That comes on top of the $40-billion-a-month purchasing announced in September.

Asian equities were mixed after the Fed added it would not lift interest rates until unemployment was under control, and warned that the looming US fiscal cliff of tax hikes and spending cuts was already hitting the world's biggest economy.

The Fed said borrowing costs would not be hiked as long as the inflation outlook was below 2.5 percent and the jobless rate, now at 7.7 percent, holds above 6.5 percent.

"The Fed managed to surprise the majority of market participants," said Commerzbank analyst Lutz Karpowitz.

"Not only did the Fed announce an extension of QE3 but it also set numerical thresholds for the unemployment and inflation rate; until these levels are reached the rate corridor will be left at 0.00 percent to 0.25 percent."

In the early hours of Thursday, meanwhile, EU finance ministers brokered a deal to create a single bank supervisor with powers to close down lenders right across the eurozone.

The complex bank supervision deal is a key step towards a banking union which EU leaders hope will ring-fence banks in trouble to prevent future financial crises.

It will allow eurozone banks to be recapitalised directly, rather than through governments, so as to avoid adding to their growing debt burden.

From March 2014, banks with assets worth more than 30 billion euros ($39 billion) or equal to 20 percent of a state's economic output will come under the ECB's remit.

Eurozone finance ministers also reviewed Greece's debt buy-back and finally released long-delayed bailout funds.

In earlier Asian trade, Tokyo stocks climbed 1.68 percent to an eight-month high as major exporters gained on the yen's dip, while Hong Kong lost 0.26 percent, Shanghai fell 1.02 percent and Sydney ended flat.

The yen continued its slide ahead of the weekend's general election in Japan that is expected to see a victory for the opposition, whose leader has vowed to press for more aggressive measures to kickstart growth.