Wall Street selloff cuts short global market rally

[NEW YORK] A late selloff on Wall Street cut short a strong global rally in stocks on Wednesday as concerns turned to the possibility that the Federal Reserve will raise interest rates next week.

Sparked by Beijing's promise of new economic stimulus and the Tokyo market's huge 7.71 per cent jump on government pledges to cut corporate taxes, US stocks opened solidly higher.

But after the S&P 500 added 2.51 per cent on Tuesday, caution took hold, especially after a report signalled more tightening in the jobs market - a key determinant for a Fed rate increase.

The S&P ended on Wednesday down 1.39 per cent and the Dow Jones Industrial Average lost 1.45 per cent.

Economists had generally decided the Fed would not be ready to launch into a long-awaited series of rate increases beginning at its policy meeting next week, given the recent turbulence in global financial markets.

But the Labour Department's so-called JOLTS report on the jobs market in July showed that job vacancies had risen to 5.75 million in July, the highest level since the data was first reported in 2000.

The Federal Reserve has repeatedly put off its first rate hike in nine years because there were no signs that the employment sector was tightening - which would tend to spur inflation. Slow wage growth especially suggested continuing slack.

But, combined with the very low levels in layoffs, "the JOLTS data suggests that businesses are doing everything they can to hang onto their labour staff because finding a suitable replacement is a daunting task," said Briefing.com.

Such a sign could raise the odds of a Fed hike at next week's meeting, though it still might not be enough.

Economist Joel Naroff said businesses still lack confidence in a growing economy.

"With openings at record highs but hiring slowing, businesses are falling further behind on meeting their staffing needs," he said.

"Wages need to rise if businesses are to produce more, households can buy more and growth can accelerate. Until that happens, we will remain in this moderate growth cycle."

STIMULUS IN CHINA, JAPAN

In China confidence grew after the finance ministry said it would adopt a "proactive fiscal policy ... and accelerate reforms that will help stabilise growth."

The Shanghai Exchange powered up 2.3 per cent and Hong Kong's Hang Seng Index added 4.1 per cent.

And after Japanese Prime Minister Shinzo Abe reiterated a pledge to cut one of the highest corporate tax rates in the world by next year, Tokyo shares registered their biggest one-day jump since the global financial crisis of late 2008, when markets faced heavy volatility.

"Expectations for more policy action from China and strength in the European economy saw the return of risk," Chihiro Ohta, general manager at SMBC Nikko Securities, told Bloomberg News.

"At long last we may be seeing a real rebound." European exchanges followed suit, also encouraged by more signs of turnaround in the eurozone economy.

London's FTSE 100 index climbed 1.4 per cent led by a rebound in mining stocks, which have been pummeled because the Chinese slowdown has led to a slump in commodities prices.

Frankfurt's DAX 30 gained 0.31 per cent; the Paris CAC 40 rose 1.44 per cent; Madrid shot up 1.74 per cent and Milan by 0.84 per cent.

"The European markets got another growth injection from the Asian session... with news from Japan and China helping to convince investors the worst may indeed be over," said Spreadex analyst Connor Campbell.

In foreign exchange, the dollar was flat against the dollar at US$1.1205. The yen slipped to 120.54 against the dollar and 135.05 against the euro.

The pound fell slightly to US$1.5367, and the Chinese yuan edged lower to 6.378 against the dollar.

AFP