Nikkei sinks over 5% as Fed fears weigh on markets

Concerns that the Federal Reserve might start scaling back its stimulus program due to improvement in the U.S. economy sent Asian stock markets lower Thursday. Japan's Nikkei 225 index tumbled 5 per cent to 13,608. Sharp rises in global stock markets this year have been partly fueled by central bank actions to keep interest rates super low to support economic recovery in the U.S., Europe and Japan. Positive signs of growth in the U.S., including data released Tuesday showing improved consumer confidence and housing prices, have also helped to boost Wall Street stocks to record highs. However, an improving U.S. economy increases the chance that the Fed might ease back on its massive bond-buying program, known as quantitative easing. The purchase of $85 billion a month in Treasury bonds has helped keep interest rates down and been a boon to stock markets, where investors have fled in search of higher returns. Hong Kong's Hang Seng shed 1 percent to 22,336. Australia's S&P/ASX 200 dropped 1 per cent to 4,921. Benchmarks in Singapore, Taiwan, Indonesia, and the Philippines also fell more than 1 percent. Investment energy was also curbed by warnings from the Paris-based Organization for Economic Cooperation and Development, which said Wednesday that Europe's recession risked hurting the world economy. The OECD slashed its forecast for the combined economy of the 17 countries that use the euro, saying it will shrink by 0.6 percent this year, after a 0.5 percent drop in 2012. Daniel Martin of Capital Economics in Singapore said two concerns are generally weighing on emerging market stocks. "The first is that the Fed might soon start tapering its assets purchases. The second is that growth in Asia has generally disappointed the market this year, as the global trade recovery has faltered," he said. One particular pocket of concern is China. A survey by HSBC Corp. said that manufacturing in world's No. 2 economy slipped in May, a sign the country's fragile recovery might be weakening. The official monthly figure on factory output is due Saturday. Otherwise, the lack of major data releases for the day deprives investors of reasons to wade into stocks, analysts said. "A lack of first tier data releases today will limit activity although the tone will likely remain relatively downbeat," said Mitul Kotecha of Credit Agricole CIB in a market commentary. The latest speculation surrounding the Fed came after the release of positive consumer confidence and housing news on Tuesday. That led investors to fret over the prospect of the Fed reducing its bond-buying. With the approach of the end of the month, investors also were booking profits. Japanese export stocks fell as the yen crept higher against the dollar. Honda Motor Corp. fell 2.9 percent. Yamaha Motor Co. lost 2.6 percent. On Wednesday, the Dow Jones industrial average fell 0.7 percent to close at 15,302.80. The Standard & Poor's 500 index fell 0.7 percent to 1,648.36. The Nasdaq composite index fell 0.6 percent, to 3,467.52. Benchmark oil for July delivery was up 11 cents to $93.24 per barrel in electronic trading on the New York Mercantile Exchange. The contract for the benchmark grade fell $1.88 to close at $93.13 a barrel on the Nymex on Wednesday. In currencies, the euro rose to $1.2959 from $1.2934 late Thursday in New York. The dollar fell to 101.05 yen from 101.15 yen.. . (With inputs from AP)

Nikkei sinks over 5% as Fed fears weigh on markets

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