Newspaper article The Canadian Press

Markets Mostly Fall as Investors Digest That Fed Will Continue with Stimulus

Newspaper article The Canadian Press

Markets Mostly Fall as Investors Digest That Fed Will Continue with Stimulus

Article excerpt

Markets lower as Fed continues QE program

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TORONTO - North American markets finished lower Thursday as investors began to digest an unexpected decision by the U.S. Federal Reserve to continue with its monetary stimulus program.

The S&P/TSX composite index fell 4.62 points to 12,926.78. The Canadian dollar dipped 0.38 of a cent to 97.45 cents US.

The U.S. central bank had been widely expected to announce a scaling back Wednesday of its $85 billion of monthly bond purchases, which have put downward pressure on long-term borrowing rates. Instead, the Fed did nothing as Fed chairman Ben Bernanke voiced worries over the state of the U.S. economic recovery and the still-high levels of unemployment.

The news sent U.S. markets up sharply, resulting in the Dow Jones industrial index and S&P 500 closing at record highs on Wednesday.

But those gains turned into losses as the news set in on Wall Street. Even a slate of slightly positive economic releases out of the U.S., from housing sales to unemployment figures, were not enough to boost the indexes.

The Dow Jones industrials index pulled back 40.39 points to 15,636.55, while the S&P dipped 3.18 points to 1,722.34. The Nasdaq was up 5.74 points at 3,789.38.

"The Fed's announcement, or lack thereof, caught a lot of investors by surprise, probably sparked a little bit more euphoria than was justified," said Philip Petursson, managing director of the portfolio advisory group at Manulife Asset Management.

"Cooler heads are looking at the situation today and saying, 'if the Fed is saying that there's reason to maintain quantitative easing at the current pace, perhaps the economy isn't as strong as the market is giving it credit for.'"

Bernanke said the bank has no fixed date to slow or end its bond purchases, adding that it could still move to taper later this year. But he noted that the program won't necessarily end when U.S. unemployment reaches seven per cent. It is now at 7.3 per cent.

The Fed meets again in October, which some say may be too soon for such an announcement. It's next scheduled meeting after that is in December. …

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