Asia stocks down on fears Fed may quicken tapering

Oct 31, 2013, 12:33 AM EDT
A man watches an electronic stock indicator in Tokyo, Wednesday, Oct. 30, 2013.
(AP Photo/Shizuo Kambayashi)

KUALA LUMPUR, Malaysia (AP) — Asian stocks were mostly lower Thursday, spooked by concerns that the Federal Reserve may accelerate plans to ease its economic stimulus.

In its latest policy statement, the U.S. central bank said Wednesday it will continue buying $85 billion in bonds every month and keep its benchmark short-term interest rate near zero. The bond purchases are designed to keep borrowing costs low to encourage hiring and investment.

The Fed said it would "await more evidence" that the economy was improving before starting to pull back its stimulus program.

While the Fed's announcement was mostly expected by investors, its comments that there was "underlying strength in the broader economy" spooked markets and raised fears that tapering could be brought forward three to four months, said Evan Lucas, market strategist with IG in Melbourne, Australia.

"Expectations had been for tapering to start in March or April next year, today's call saw the street moving its predictions to January which saw hot money exiting," he said.

Japan's Nikkei 225 fell 0.2 percent at 14,471.80 and Hong Kong's Hang Seng was off 0.4 percent to 23,221.08.

China's Shanghai Composite shed 0.8 percent at 2,142.90 while Seoul's Kospi lost 0.7 percent at 2,045.76. Benchmarks in Jakarta, Singapore, Taiwan and Malaysia also fell.

The U.S. central bank's cheap money policy has underpinned stock markets worldwide for several years. Markets had been roiled by expectations that the Fed would begin reducing its stimulus this year but weaker U.S. hiring, housing and other economic indicators have built a case for "tapering" of the bond purchases to be delayed until next year.

DBS Vickers in Hong Kong said there was a possibility that tapering may not occur as U.S. growth momentum appeared fragile, with consumption growth slowing to a 3 ½- year low, weak employment trend and inflation drifting lower.

"The Fed wants to see sustained progress. It's seeing it but it's going the wrong way. If this progress is sustained, the Fed won't be tapering at all in 2014," it said in a market commentary.

On Wednesday, the Dow Jones industrial average lost 61.59 points, or 0.4 percent, to 15,618.76. The Standard & Poor's 500 index fell 8.64 points, or 0.5 percent, to 1,763.31. The Dow and S&P 500 closed at record highs Tuesday.