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Interest rate fears hammer equities

David Russell (david.russell@optionmonster.com)

Stocks are falling again as interest-rate fears sweep markets.

S&P 500 futures are down about two-thirds of a percent, following a drop of 1.4 percent yesterday. European markets have lost more than 2 percent and are trying to hold their lows. Shanghai and Hong Kong led the decline in Asia during the overnight session after China's manufacturing sector continued to show signs of weakness.

The big catalyst was Federal Reserve Chairman Ben Bernanke's press conference yesterday afternoon, during which he said the central bank could halt bond purchases by next year. The comments were considered more hawkish than most economists had expected.

Stocks fell on the news and closed near session lows. The U.S. dollar rallied against most other currencies, which is causing huge losses for precious metals this morning.

The S&P 500 has been trying to rebound for the last two weeks after testing support at its 50-day moving average on June 6. Attention now focuses on whether buyers will step in to defend current levels, or a broader wave of selling takes hold.

Bulls may find a silver lining in the fact that Bernanke cited signs of an improving U.S. economy. The former Princeton University professor, expected to leave the Fed in January, said employment is recovering more quickly than previously forecast, and he promised that actual interest-rate hikes remain "far in the future." Reduced asset purchases simply means that fewer Treasury bonds will be bought, permitting longer-term rates to increase.

Dollar strength is the main theme in foreign-exchange and commodity markets, with every major currency and futures contract lower. Oil declined 1.5 percent, copper fell almost 2 percent, silver plunged 7 percent, and gold lost 5 percent.

In company-specific news, telecom-equipment company Finisar is indicated to open higher by 10 percent after earnings and revenue beat expectations. Insurance-software provider Ebix is down 38 percent after an affiliate of Goldman Sachs backed out of a buyout agreement. Software maker Red Hat is modestly higher on strong quarterly results.

Facebook is also likely to be active as the company holds a press conference to announce a new product. 

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