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June 25th, 2013 
Peter Nolan
EUROPEAN stock markets briefly rebounded as investors fished for bargains but then resumed a steep slump driven by the Federal Reserve’s plans to cut easy-money stimulus.
In midday trading, London’s benchmark FTSE 100 was up over one per cent, with the Paris CAC and Frankfurt’s DAX 30 also showing significant gains.
But those gains fizzled after Wall Street reopened, with London’s FTSE 100 index of leading shares closing down 0.70 per cent to 6,116.17 points.
In Frankfurt the DAX 30 index fell 1.76 per cent to 7,789.24 points, while in Paris the CAC 40 dropped 1.11 per cent to 3,658.04 points.
Milan slumped 1.89 per cent and Madrid shed 1.56 per cent.
“After the declines seen in the past two days we’ve seen an attempt at a relief rally today, though it hasn’t been enough to prevent the fifth weekly decline in a row for European equity markets,” said CMC Markets UK analyst Michael Hewson.
All three main European indices had tumbled on Thursday by around 3.0 per cent after the Fed signalled it may begin winding down its massive bond-buying policy, which is more commonly known as quantitative easing (QE).
The European single currency slid to $1.3125, from $1.3225 late in New York on Thursday.
In commodity markets, gold climbed to $1,295.25 an ounce in London, after slumping in Asian trading hours to $1,269.45 — which was the lowest level since mid-September 2010.
Gold had traded around $1,366 an ounce before the Fed’s announcement on Wednesday sent the dollar climbing.
“Gold prices tumbled… with no large physical buyers or investors in sight,” said Andrey Kryuchenkov, analyst at Russian financial group VTB Capital.
The precious metal had been hit by a rising dollar, making dollar-priced gold more expensive for buyers using rival currencies, thereby weighing on demand.
Gold fell also on receding inflationary concerns. Investors often buy gold as a hedge against inflation, and many analysts see QE stimulus as stoking inflationary pressures.
Investor sentiment has additionally been rocked this week by poor Chinese economic manufacturing data.
The losses are part of a global correction in equities and commodities, which had enjoyed strong rallies since the Fed unveiled its bond-buying scheme in September.
Tokyo began the day two per cent lower, extending Thursday’s slump, but it reversed course in the afternoon thanks to the dollar rally and closed 1.66 per cent higher.
Hong Kong lost 0.10 per cent and Shanghai shed 0.16 per cent. Chinese shares pared earlier losses after reports the country’s central bank had pumped billions of dollars into several lenders to ease a liquidity crisis.
Wall Street seemed to have finally stabilised in opening trade on Friday, after two days of heavy losses, but by midday had reversed initial gains.
The Dow Jones Industrial Average slid 0.30 per cent to 14,714.77 points, the broad-based S&P 500 lost 0.48 per cent to 1,580.63 points, and the tech-rich Nasdaq Composite Index shed 1.03 per cent to 3,329.99 points.
On Thursday the Dow lost nearly 354 points, or 2.3 per cent, to finish at 14,758.32 points, to chalk up the blue chip index’s largest points loss since November 9, 2011.
The plunge followed one per cent losses on Wednesday sparked by Chairman Ben Bernanke’s statement that the Fed could begin pulling back its $85 billion-a-month stimulus program late this year and wind it up by mid-2014.
“Optimism was dealt a severe blow as investors continued to grapple with the announcement that stimulus measures from the US could end in the middle of 2014,” added Spreadex trader Shavaz Dhalla.
“Investors seemed to be astonished by the announcement despite the fact that officials have been alluding to the possibility in recent times.”
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