GLOBAL MARKETS-Shares, bonds fall as Fed speculation dominates

Reuters

(Corrects 5th last paragraph to say "two-month peak" instead of"one-month peak")

* Wall Street edges lower with Fed speakers in focus

* U.S. Treasuries weaken; Brent, U.S. crude fall

* Dollar climbs to one-month peak vs yen, nears 100 yen

By Ellen Freilich

NEW YORK, Nov 12 (Reuters) - Global equity markets andgovernment debt prices fell on Tuesday as investors worriedabout the Federal Reserve reducing its stimulus, a criticalsupport for asset prices and the economy.

German Bunds hit three-week lows, tracking weaker prices forU.S. Treasuries, as investors made room for this week's latestsupply of U.S. government debt.

A measure of global equity performance was down slightly asstocks on Wall Street and in Europe fell, a day after the DowJones industrial average hit yet another record close.

"Quantitative easing suppresses market volatility, but atwhat cost?" Matt Toms, head of public fixed income at INGInvestment Management, said of the Fed stimulus. "Would removingquantitative easing act as a volatility accelerant? We saw thathappen in May."

Other far-reaching factors could minimize any volatilitythat ensues from fewer Fed purchases of Treasuries andmortgage-backed securities, however.

"There's a great yearning for stability, so higher yieldswill bring cash off the sidelines into fixed-income assets,"Toms said, and those flows would keep downward pressure onrates.

Also, the Fed, along with the European Central Bank and Bankof Japan, "fear deflation," Toms noted.

Investors pored over remarks from Fed officials for cluesabout potential Fed tapering.

Atlanta Fed President Dennis Lockhart sounded a dovish note,citing downside risks to the 2014 economic outlook. He saidconsumer spending needed to rise and the fiscal drag on economicgrowth had to fade. Monetary policy overall should remain "veryaccommodative for quite some time," he added.

But Dallas Fed President Richard Fisher, predictably, told CNBC cable television that the Fed's monetary stimulus programcannot continue forever.

The Dow Jones industrial average fell 73.21 points,or 0.46 percent, at 15,709.89. The Standard & Poor's 500 Index was down 9.42 points, or 0.53 percent, at 1,762.47. TheNasdaq Composite Index was down 15.98 points, or 0.41percent, at 3,903.81.

"There are not as many stocks participating on the upside asthere are for the downside," said Frank Gretz, market analystand technician for brokerage Shields & Co. in New York.

"The net of this is that the market has more to go on thedownside on the short-term, although there isn't a big problem,a big divergence in the market," he said.

MSCI's all-country world equity index fell0.3 percent after two days of gains, while the pan-EuropeanFTSEurofirst 300 index of leading regional shares fell0.59 percent.

U.S. Treasury prices fell, with the benchmark 10-year U.S.Treasury note down 7/32 in price to yield 2.7719percent.

The fallout of forecast-beating U.S. jobs data on Fridaywiped away Bund gains triggered by the European Central Bank'ssurprise interest rate cut a day earlier.

"The main story for the Bunds is still the Fed and whathappens with tapering," said Alan McQuaid, chief economist atMerrion Stockbrokers in Dublin. "I still think more peopleexpect them to move in March rather than in December. That's myview as well, but I wouldn't completely rule out December."

The Bund future settled down 31 ticks at 140.70.

The dollar rose to a two-month peak against the yen asinvestors began to bet the Fed will begin trimming stimulussooner than previously anticipated.

The dollar was last up 0.47 percent at 99.62 yen,with the peak of 99.79 yen its strongest since Sept. 13.

The euro was up 0.18 percent at $1.3430 and holding above a two-month low of $1.3295 hit last Thursday, when it soldoff sharply after the ECB's unexpected rate cut.

Brent crude futures initially rose as disruptions to Libyanoil exports showed no sign of abating and Iran said splitsbetween Western powers had prevented a breakthrough in nucleartalks that could relax sanctions.

Brent crude for December delivery was down 0.30cents at $106.10 a barrel. U.S. crude for December delivery was down $1.57 cents at $93.57 a barrel.

(Additional reporting by Herb Lash in New York and RichardHubbard in London; Editing by Dan Grebler)

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