Gold slumps, global shares give back some of week's gains

Reuters

By Ryan Vlastelica

NEW YORK (Reuters) - Gold prices and stocks on major markets gave back some gains on Friday, after soaring earlier this week in the wake of the Federal Reserve's unexpected decision to maintain its monetary stimulus.

The Fed's move had spurred benchmark U.S. stock indexes to all-time highs on Wednesday, as well as driving up the price of gold and lowering bond yields, but doubts about the direction of U.S. monetary policy remain.

St. Louis Federal Reserve Bank President James Bullard said in an interview on Bloomberg TV on Friday that a start to winding down the stimulus program was possible in October, depending on upcoming economic data.

Gold prices fell 2.3 percent on Friday, giving back about half of the week's gains, while bonds and currencies were little changed.

The Dow Jones industrial average was down 88.96 points, or 0.57 percent, at 15,547.59. The Standard & Poor's 500 Index was down 7.61 points, or 0.44 percent, at 1,714.73. The Nasdaq Composite Index was down 5.26 points, or 0.14 percent, at 3,784.13. The S&P is up 1.6 percent on the week.

"We're cautioning our clients to keep their powder dry. While markets aren't historically overbought and the Fed has removed some uncertainty, we wouldn't be surprised if we saw some kind of correction going into October," said Mark Martiak, senior wealth strategist at Premier Wealth/First Allied Securities in New York.

In an encouraging sign for investors, cybersecurity company FireEye Inc shares opened 101.5 percent above the initial public offering price of $20, surging to $40.30 on Friday.

European shares dipped 0.3 percent while the euro was holding near an eight-month high after its best week since July. Investors also looked ahead to German elections on Sunday.

MSCI's index of world shares fell 0.4 percent but was on track for its third straight week of 2 percent-plus gains and hovered near a five-year high. Japanese stocks slipped 0.2 percent.

US DOLLAR, BONDS HOLD GROUND

The U.S. dollar index was little changed, but held above its week lows after finding some support on Thursday from economic data.

Analysts at BNP Paribas said they expected the greenback to "recover quickly versus the lower-yielding currencies in the G10." Fadi Zaher, head of bonds and currencies at Kleinwort Benson, said they were also betting on dollar gains.

After taking a battering in May and June on prospects of reduced U.S. monetary stimulus, emerging market currencies and stocks were some of the biggest winners from the Fed move this week.

Indian financial markets were roiled again on Friday, however, after the Reserve Bank of India unexpectedly raised interest rates by 25 basis points.

The Indian rupee fell 0.7 percent to 62.23 to the U.S. dollar while Indian shares fell almost 2.0 percent.

The benchmark 10-year U.S. Treasury note was up 7/32, with the yield at 2.7246 percent. Benchmark 10-year German government bonds were also stable at 1.901 percent after yields sank to a one-month low of 1.812 percent on Thursday.

The euro and the euro zone shares and higher-yielding bonds have been supported by recent signs of economic recovery, but some market players are getting nervous before Sunday's German election.

Though Chancellor Angela Merkel is likely to win a third term, her lead has narrowed in recent opinion polls. A new eurosceptic party, Alternative for Germany, could make headway in parliament, which might rattle some investors.

"If the party gets 5 to 6 percent of the vote, people will start gauging the risk of Germany leaving the euro. That would be negative for the euro zone," said Arihiro Nagata, head of foreign bond trading at Sumitomo Mitsui Banking Corp.

In the commodities market, Brent crude oil rose 0.1 percent to $108.91 per barrel after a steep drop in the previous session.

That drop came on increased Libyan production and signs of a thawing of diplomatic relations between Iran and the West. U.S. crude fell 0.9 percent on Friday.

(Editing by Andrew Hay and Clive McKeef)

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