European stocks dive in opening deals on Fed news

LONDON (AFP) - European stock markets fell sharply in opening deals on Thursday, in line with a global retreat after the US Federal Reserve signalled it would wind down its massive quantitative easing stimulus programme later this year.

In initial trading, London's benchmark FTSE 100 index slid 1.5 per cent to 6,253.28 points, Frankfurt's DAX 30 dived 1.69 per cent to 8,057.64 points and in Paris the CAC 40 shed 1.62 percent to 3,777.06.

Asian markets also fell sharply on Thursday, following heavy losses on Wall Street in the wake of the Fed news, and after weak Chinese manufacturing data.

The Federal Reserve said on Wednesday that it would keep in place its US$85-billion-a-month (S$107 billion) bond-buying programme as unemployment remains high and growth in the world's top economy was being held back by government spending cuts.

However, in a news conference, Fed chairman Ben Bernanke said that the central bank's policy committee "currently anticipates that it would be appropriate to moderate the monthly pace of purchases later this year" if the economic outlook continued to improve.

"Ben Bernanke made it absolutely clear that the Fed will begin to taper its asset purchases later this year, if the economic data continues to improve in line with projections," said analyst Craig Erlam at traders Alpari.

"This is about as black and white as it gets with the Fed, which is why we've seen such a sell-off in global equities, while US Treasury yields have gone through the roof and the greenback has rallied aggressively."

The Fed also upgraded its assessment of the economic recovery, saying unemployment may fall to 6.5 per cent by the end of 2014 - one condition previously set to justify rolling back its stimulus programme.

"The Fed provided a more explicit view on tapering than what many had been positioned for," said analyst Christ Weston at trading firm IG.

He added: "The Fed will ease off from asset purchases in September, perhaps October, as long as economic data continues to trend to plan."

Adding to selling pressure was preliminary data on Chinese manufacturing from HSBC, which showed activity contracted again in June and was at a nine-month low point.