World stocks waver ahead of Bernanke’s testimony

A sign for Wall St. is shown outside the New York Stock Exchange, Monday, July 15, 2013 in New York. World stock markets wavered between gains and losses Wednesday July 17, 2013 as investors remained cautious ahead of testimony from U.S. Federal Reserve Chairman Ben Bernanke. AP

KUALA LUMPUR, Malaysia— World stock markets wavered between gains and losses Wednesday as investors remained cautious ahead of testimony from U.S. Federal Reserve Chairman Ben Bernanke.

Bernanke’s address to lawmakers in Congress could provide clearer guidance on when the Fed will start reducing its monetary stimulus.

The central bank is spending $85 billion a month buying financial assets in the hope of keeping long-term borrowing rates low and stimulating the U.S. economy. The program has been a major driver of gains in stock markets as investors sought higher returns in a low interest rate world.

In early European trade, France’s CAC 40 dropped 0.2 percent to 3,842.43 and Germany’s DAX shed 0.2 percent to 8,183.15. Britain’s FTSE 100 lost 0.2 percent to 6,545.02. Futures pointed to losses on Wall Street with Dow and S&P 500 futures both down 0.2 percent.

In Asia, China’s Shanghai Composite Index fell 1 percent to 2,044.92 while Tokyo’s Nikkei 225 gained 0.1 percent to 14,615.04. Hong Kong’s Hang Seng rose 0.3 percent to 21,371.87 and Seoul’s Kospi added 1.2 percent to 1,889.50. Benchmarks in Singapore and Australia fell.

“There is partly caution ahead of Bernanke’s testimony. I don’t expect anything new. He is likely to reiterate that policies will remain accommodative for some time,” said Mitul Kotecha, analyst with Credit Agricole CIB.

Bernanke last week said the central bank would not ease its stimulus before the economy was ready and that the U.S. needs “highly accommodative monetary policy” — or low interest rates — for the foreseeable future.

There is concern, however, over disagreement among Fed officials about when the central bank should start scaling back its purchases of Treasurys and other assets.

Esther George, the President of Kansas City branch of the Fed, and a voting member of the committee that sets the Fed’s monetary policy, said Tuesday that the central bank should cut back on its stimulus as the labor market begins to recover.

“It is time to adjust those purchases,” George said in an interview on Fox Business News. “Sooner is appropriate … because we have a long way to go if we are going to do this in a gradual and a systematic way.”

DBS analysts said in a report that as long as the U.S. recovery proceeds as expected, a reduction in the Fed’s asset purchases will probably start with mortgage-backed securities later this year and that the stimulus could ideally end by mid-2014.

It said Bernanke was likely to reassure markets that if the U.S. economy stumbles, the Fed could increase asset purchases again.

In the U.S., the Dow Jones industrial average closed down 0.2 percent at 15,451.85 on Tuesday while the broader S&P 500 index ended an eight-day rally to fall 0.4 percent to 1,676.26, partly due to lackluster corporate earnings.

Benchmark crude for August delivery was down 74 cents at $105.27 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell 32 cents to settle at $106.00 on Tuesday.

In currencies, the euro fell to $1.3147 from $1.3149 late Tuesday. The dollar rose to 99.61 yen from 99.21 yen.