U.S. Stocks cool ahead of Fed, pound skids on disappointing GDP

By Reuters

Apr 28, 2015 06:42 AM EDT

World shares shuffled away from all-time highs on Tuesday as surging Chinese stocks took a breather and investors began to retreat to the sidelines ahead of the Federal Reserve's policy meeting.

European bourses and the euro also dipped in early trading after both had been boosted on Monday by a revamp of Greece's negotiating team, while the pound tumbled on weak UK growth figures just ahead of next week's tightly contested national election.

Quarterly growth came in at 0.3 percent, well below forecasts of 0.5 percent and the slowest pace in more than two years.

The figures were seen as loaded with significance coming just nine days before an election and its aftermath, when Britain's future cohesion and its membership of the European Union could be potentially at stake.

"I think the real risk is so much uncertainty," said Societe Generale strategist Kit Juckes.

"We could have two elections in 12-18 months and that would just see a cacophony of policy suggestions that would only add to that uncertainty."

The pound had been hovering at a near two-month high but the data pushed it down to $1.5188 from $1.5258 and to 1.39 from 1.40 versus the euro.

Britain's FTSE stock index, which has been riding a wave of all-time European highs in recent weeks, was left 0.8 percent lower, although the fall was broadly in line with moves on Germany's DAX and France's CAC 40.

Overnight in Asia, MSCI's broadest index of Asia-Pacific shares outside Japan had followed Wall Street lower as it dropped 0.5 percent, but only after touching its highest level since January 2008.

The main culprit was Chinese shares, which dropped 1.4 percent. They though have almost doubled in value since October on the launch of Western and domestic market-friendly trading links and monetary policy easing hopes.

Investors were also looking to limit their risk ahead of the start of the two-day Fed meeting later.

There will be no news conference or forecasts this time around and analysts expect no change in the central bank's policy statement following recent weaker-than-forecast domestic data.

The dollar, whose strength has also been seen as a factor in the soft data, was little changed against most of the world's other major currencies and was at 119.095 yen after touching 119.44 overnight. The Bank of Japan also meets this week.

The euro was in focus too, having climbed to a three-week peak of $1.0927, well off its 12-year nadir of $1.0457 plumbed in mid-March. It last stood at $1.0873, down about 0.1 percent on the day.

Greek Prime Minister Alexis Tsipras on Monday reshuffled his team handling talks with European and IMF lenders, a move widely seen as an effort to relegate embattled Finance Minister Yanis Varoufakis and get talks back on a better track.

"He (Varoufakis) is creating a number of tensions so that (reshuffle) can certainly help the negotiations," one of the ECB's top policymakers and Bank of France chief, Christian Noyer, said on Tuesday.

In commodities trading, crude oil extended Monday's losses as ample global supply blunted support from the conflict in Yemen and the falling number of U.S. rigs drilling for oil.

Weekly U.S. crude inventory data is also expected to show another high, and Saudi Arabia pledged to supply more oil to China if needed, which kept traders cautious after prices reached 2015 peaks last week.

Brent was down about 1 percent at $64.19 a barrel, while U.S. crude shed about 1.2 percent to $56.33. Gold, meanwhile was flat at $1,200 an ounce.

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