Global stock markets stabilize following sell-off

AP and AFP

HONG KONG–World stocks stabilized Tuesday as selling pressure eased after several days of steep losses and investors shifted to a holding pattern ahead of a Fed decision on scaling back stimulus.

Investors worried about slowing growth in China, the world’s second biggest economy, found some solace in reports that a high-profile trust company in China cut a last minute deal to avoid a default.

Some 700 clients who bought into a 3 billion yuan (US$496 million) product from China Credit Trust agreed on Monday to a restructuring so that they could get their investment back, Xinhua reported, avoiding the first of what was feared would be a cascade of defaults in the country’s shadow banking sector. In early European trading, Britain’s FTSE 100 added 0.2 percent to 6,561.62 and Germany’s DAX gained 0.4 percent to 9,382.98. France’s CAC 40 rose 0.4 percent to 4,161.66.

Wall Street was also set to bounce back, with Dow futures up 0.5 percent. Broader S&P 500 futures were 0.4 percent higher.

There is growing concern that with the Fed on a course of winding down its stimulus program, the cash that has provided strong investment support for emerging economies — from Argentina and South Africa to Indonesia and India — could dry up, leading to a flight of capital. Adding to that is a string of weak Chinese data, including last week’s dire manufacturing figures, that have raised questions about the world’s number two economy, which is a key driver of growth.

Investors are awaiting the outcome of a two-day Federal Reserve meeting kicking off Tuesday. Officials are expected to announce a reduction in the central bank’s bond buying program by another US$10 billion to US$65 billion as the U.S. economy continues to improve.

In Asia, markets were mixed Tuesday after suffering a heavy sell-off in the previous session, with traders still nervous over emerging economies as they await the Federal Reserve’s next move on its stimulus program. Tokyo closed down 0.17 percent, or 25.57 points, to 14,980.16, ending below 15,000 for the first time since mid-November, while Seoul rose 0.34 percent, or 6.59 points, to 1,916.93.