Europe: Stocks slide as traders eye Fed

[LONDON] European stocks mostly dropped on Monday, with investors cautious ahead of the US Federal Reserve's key interest rate meeting this week.

Focus was also firmly on China which revealed a mixed bag of economic data from the world's second biggest economy.

Amid concerns over China, the possibility that the Federal Reserve could raise interest rates for the first time in more than nine years this week has injected new levels of anxiety in the global economy.

"It's going to be a very interesting week in the financial markets in which we could see the return of the volatility of recent weeks as the Federal Reserve is tasked with making one of the hardest policy decisions for many years," said Craig Erlam, senior market analyst at Oanda trading group.

In London Monday the benchmark FTSE 100 index slid 0.54 per cent to close at 6,084.59 points.

In the eurozone, the CAC 40 in Paris dipped 0.67 per cent to finish at 4,518.15 points, while Frankfurt's DAX 30 was little changed, up 0.08 per cent to 10,131.74 points, compared with Friday's close.

The issue before the Fed is whether to bring the benchmark federal funds rate up from zero per cent, where it has been frozen since the financial crisis of 2008.

But some analysts think a modest Fed move - 25 basis points - would hardly be a game-changer for world markets.

"Indeed, once the dust has settled, the combination of a small hike and a relatively dovish statement (from Fed policymakers) may be better received than yet another delay," said Julian Jessop, chief global economist at Capital Economics.

He added that a delay in raising rates "might simply be interpreted as a sign that the Fed is more worried about the global economy."

The Fed is anxious to get off the extraordinarily low rate level, and US economic growth is strong enough to handle a quarter-point rate increase, a number of Fed officials have suggested.

The mere prospect of raising US interest rates, and thus higher returns for investors, is boosting the dollar against the euro, which dropped to $1.1299 from $1.1333 late on Friday in New York.

Waiting on the Fed's decision when its meeting wraps up Thursday also sent US stocks lower.

In late morning trade in New York Monday, the Dow Jones Industrial Average was down 0.34 per cent, the broad-based S&P 500 dipped 0.24 per cent, while the tech-rich Nasdaq Composite Index slipped 0.25 per cent.

Meanwhile, following turmoil in global financial markets over the past month, there remains much to be known about how China's slowdown will affect the rest of the world.

"With global financial markets remaining sensitive to fresh news from China, the latest set of Chinese data proved fairly disappointing and cemented concerns about the economy," Rabobank said in a note to clients.

China on Sunday released another set of figures that underline weakness in its huge economy - a key driver of global growth - following soft reports last week.

The government said growth in industrial production was below expectations in August while retail sales accelerated a little more than forecast.

On the corporate front, European planemaker Airbus Monday was inaugurating its first production plant in the United States, taking its fight for a bigger market share to rival Boeing's home turf.

The US$600-million facility in Mobile, Alabama, is due to eventually employ about 1,000 workers. Airbus shares fell 1.91 per cent to 54.51 euros.

AFP