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updated: 8/15/2012 6:58 AM

Markets stutter as Fed stimulus hopes fade

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Associated Press

LONDON -- Markets struggled for direction in light trading volumes Wednesday though waning expectations of an imminent monetary stimulus in the U.S. gave traders an incentive to book some recent gains.

Stocks have enjoyed a bumper few weeks on hopes that the world's leading central banks will do more to shore up economic growth, but a round of upbeat U.S. economic figures have reined in expectations of the Federal Reserve doing something in September. However, investors may not get a clearer insight into Fed policy until chairman Ben Bernanke's speech on Aug. 31 at an annual economic conference in Jackson Hole, Wyoming. Until then, markets may drift in the traditional summer lull in Europe and the U.S.

Tuesday's figures showing a surprisingly big 0.8 percent increase in U.S. retail sales in July was the latest in a series of better-than-expected economic data out of the world's largest economy.

"It would be unwise in these volume-light times to ascribe much meaning to today's dip, but it seems that the current rally is going through a temporary pause, in the wake of economic data that perhaps lessens expectations of Fed action in September," said Chris Beauchamp, market analyst at IG Index.

In Europe, volumes were particularly light as many countries were on holiday, though markets remained open.

Germany's DAX was 0.4 percent lower at 6,945 while the CAC-40 in France fell 0.4 percent to 3,439. The FTSE 100 index of leading British shares was down 0.4 percent at 5,843. This was in spite of figures showing a surprise fall in U.K. unemployment to 8 percent and a solid 4 percent rise in the share price of Standard Chartered PLC after it agreed a $340 million settlement with New York authorities over controversial transactions with Iran.

Wall Street was poised for a subdued opening, with both Dow futures and the broader S&P 500 futures down 0.1 percent.

It was a similarly quiet picture in other markets. The euro, which has recently been buoyed on hopes of European Central Bank action, was up 0.1 percent at $1.2330. And the price of oil, which in parallel has pushed back above $90 a barrel, was down 4 cents at $93.41 a barrel.

Despite questioning whether the Fed will decide to pump more money into the U.S. economy, investors think the ECB and the monetary authorities will announce new policy measures in the coming weeks. While the ECB is expected to restart its bond-buying program in order to keep a lid on the borrowing rates of Italy and Spain, the People's Bank of China is widely-tipped to cut interest rates further to shore up faltering economic growth.

Earlier in Asia, stock markets finished mostly lower. Japan's Nikkei 225 index closed slightly down at 8,925.04 while Hong Kong's Hang Seng fell 1.2 percent to 20,052.29. Markets in South Korea and India were closed for public holidays.

Benchmarks in mainland China also fell. The Shanghai Composite Index lost 1.1 percent to 2,118.94 while the smaller Shenzhen Composite Index lost 0.8 percent to 886.98.

"China's economy is slowing down, this is a concern," said Dickie Wong, executive director for research at Kingston Securities Ltd. In Hong Kong. "But it gives more room for the central bank of China to act and to do something to ease monetary policy."

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