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GLOBAL MARKETS-Treasuries yields at 3-month low on Fed; China, Euro bank review hit shares

* U.S. Treasuries yields lowest in 3 months as tapering seen


* Wall St down after four record sessions for S&P 500 on

weak results

* China short-term rates spike boosts demand for dollar,

yen, Swiss franc

By Angela Moon

NEW YORK, Oct 23 (Reuters) - U.S. Treasuries yields fell to

the lowest in three months on Wednesday on reinforced

expectations that the Federal Reserve is unlikely to reduce its

stimulus efforts in the near term, while global equity markets

ended their recent winning streak.

On Wall Street, the S&P 500 was down after a four-day streak

of record highs as shares of Caterpillar and a number of

chipmakers tumbled on weaker-than-expected results.

European shares snapped a nine-day winning streak, hit by

plans for a tougher stress test for euro zone banks, as well as

weak earnings numbers and forecast downgrades in other sectors.

The FTSEurofirst 300 index lost 0.6 percent.

Global equity markets weakened as China's primary short-term

money rates rose on concerns the People's Bank of China may

tighten its cash supply to address inflation risks, which could

hurt growth in the world's second-largest economy. Shanghai

shares fell 1.3 percent.

In the U.S. Treasuries market, the focus was largely

centered on next week's Federal Reserve policy meeting, where

the U.S. central bank is expected to keep its $85 billion a

month bond purchase program unchanged.

"The Fed is kind of handcuffed from doing any tapering; the

consensus is pushing it out to March. The weak (jobs) number

supports it," said Sean Murphy, a Treasuries trader at Societe

Generale in New York.

A Reuters poll conducted on Tuesday showed 9 of 15 U.S.

primary dealers see the Fed starting to reduce bond purchases in

March, with many of them blaming Washington's fiscal impasse for

a "significant" impact on the Fed's timing.

The benchmark 10-year U.S. Treasury note was up

6/32, the yield at 2.4908 percent.


The STOXX Europe 600 Banks index dropped 2.1 percent for its

weakest day in two months after the European Central

Bank said it would review the quality of a broader-than-expected

range of assets held by top regional lenders next year. That may

result in them having to raise fresh capital.

The Spanish IBEX and Italian FTSE MIB

recorded their worst sessions since August.

On Wall Street, Caterpillar Inc was one of the

biggest decliners on the S&P, slumping 6 percent to $83.83 after

the heavy-equipment machinery maker cut its full-year outlook

for a third time.

The Dow Jones industrial average was down 58.81

points, or 0.38 percent, at 15,408.85. The Standard & Poor's 500

Index was down 8.48 points, or 0.48 percent, at 1,746.19.

The Nasdaq Composite Index was down 23.78 points, or

0.61 percent, at 3,905.79.

MSCI's world equity index, which tracks

shares in 45 countries, fell 0.6 percent.


The dollar, yen and Swiss franc all rose on Wednesday after

a spike in China's short-term money-market interest rates drove

risk aversion, driving bids for the three safe-haven currencies.

China's primary short-term money rates rose in

a delayed reaction to signals from regulators that they are

considering tightening liquidity to tamp rising inflationary


A policy adviser to the People's Bank of China told Reuters

on Tuesday that the authority may tighten cash conditions in the

financial system to address inflation risks.

Concerns about soft U.S. jobs data for September, which

appeared to rule out a cut in U.S monetary stimulus before next

year and caused a plunge in the dollar, took a back seat as

Chinese money market rates climbed to levels not seen since


"The weight of a weak U.S. non-farm (payroll data released

on Tuesday) is surpassed by rising risk aversion on concerns

over China's money market. Profit-taking takes hold," said

Camilla Sutton, chief currency strategist at Scotiabank in


The dollar rose against riskier commodity-linked currencies

such as the Australian and New Zealand dollars. The Aussie

dollar fell 0.8 percent versus the greenback to US$0.9629

, while the New Zealand currency dropped 1.5 percent to


The yen was also in demand, with the dollar down 0.9 percent

at 97.24 yen and the euro 0.8 percent weaker at 134.08


The Swiss franc also rose, as the dollar slipped 0.4 percent

to 0.8912 franc and the euro fell 0.3 percent to 1.2290

francs >EURCHF=>.

In commodities trading, U.S. oil prices fell, extending one

of the year's sharpest sell-offs, after government data showed a

surprisingly large increase in crude supplies.

U.S. crude settled down $1.44 at $96.86 while Brent

crude fell $2.17 to $107.80 a barrel.