Markets muted as focus returns to Fed

LONDON (AP) -- Markets were muted Thursday as investors awaited developments on the U.S. economic front that may well be crucial in determining expectations for next week's Federal Reserve policy meeting.

The likelihood that the Fed will start to reduce its huge bond-buying program has shaken markets in recent weeks. Fed officials have strongly hinted that the U.S. central bank plans to wind down its $85 billion in monthly bond purchases as the economy improves.

The asset purchases are widely credited with holding down interest rates and breathing life into stock markets, and the investment terrain will likely endure a shake-up if and when the Fed announces a "tapering" of asset purchases. That could take place as soon as next week's meeting.

The retail sales data for August, which the U.S. Commerce Department will release Friday, will help traders evaluate the likelihood of such an announcement by the Fed. In the run-up to those figures, weekly jobless claims data showing a surprisingly big 31,000 fall to 292,000 had little impact as they were skewed by under-reporting in two states.

"Consequently, the markets just ignored this piece of data," said Fawad Razaqzada, technical analyst at GFT Markets.

In Europe, the FTSE 100 index of leading British shares closed more or less flat at 6,588.98 while Germany's DAX was steady at 8,494. The CAC-40 in France ended 0.32 percent lower at 4,106.63.

In the U.S., the Dow Jones industrial average was down 0.1 percent at 15,313 while the broader S&P 500 index fell 0.2 percent to 1,686.

How the Fed acts next week will also likely determine how the dollar fares over the rest of the year. In recent weeks, it's largely traded in fairly narrow ranges against its main competitors. On Thursday, the euro was steady at $1.3315, hardly helped by figures showing a much bigger than expected 1.5 percent fall in industrial output in the 17-country eurozone in July.

Earlier in Asia, Hong Kong's Hang Seng rose 0.1 percent to 22,953.72 while South Korea's Kospi was nearly flat at 2,004.06. Japan's Nikkei 225 index, the regional heavyweight, fell 0.3 percent to 14,387.27, dragged down by the modestly firmer yen, which makes the country's exports relatively more expensive — the dollar was 0.6 percent lower at 99.22 yen.

But mainland China's Shanghai Composite Index rose 0.6 percent to 2,255.60, as investors cheered Chinese industrial numbers released Tuesday, plus a speech by Premier Li Keqiang promising to open markets to private competition, analysts said.

"Any sort of doomsday scenario that China is going to see falling GDP growth has been squashed for the time being," said Samuel Le Cornu, portfolio manager at Macquarie Funds Group in Hong Kong.

India's Sensex also dropped by 1.5 percent to 19,709.87 in a sell-off after strong rallies over past days in response to new central bank proposals to strengthen the rupee. Benchmarks in Indonesia, Taiwan and Singapore slightly rose.

Worldwide, markets had been boosted in recent days by diplomatic efforts to get Syria to turn over its stockpile of chemical weapons, easing fears that the U.S. would launch an attack.

Oil prices have fallen back as the Russian proposal to get Syria to give up its chemical weapons emerged. On Thursday, they recovered with the benchmark New York rate up 86 cents to $108.42 a barrel.

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Johnson contributed from Mumbai, India.