World markets slide anew on emerging markets

AMSTERDAM — After a strong Asian session and positive European open, world markets shifted course and fell Wednesday as jitters over the prospects for emerging economies resurfaced.

Turkey's central bank hiked its lending rates overnight by more than expected to stabilize the Turkish lira and keep inflation under control. That gave an initial boost to its currency and to world markets.

But the effect gradually faded, and a surprise move by South Africa's central bank to raise rates in the early afternoon only strengthened its currency for a half-hour.

The shook confidence in markets more broadly, pushing stocks lower.

"I guess the biggest reason for this volatility is that we've seen the impact of a major intervention by Turkey fade so quickly," said IG market analyst Alastair McCaig. "Now South Africa has done the same thing and it only boosted the rand for about a half hour."

In the background, investors are anticipating a decision by the U.S. Federal Reserve to further "taper," or reduce, its mortgage and long-term bond purchases later Wednesday.

Although the Fed insists tapering is not equivalent to monetary tightening, if markets interpret it as even a prelude to tightening, it has the potential to again weaken emerging currencies as investors prefer to hold dollars.

"It's not so much that people think there will be instant ramifications if the taper proceeds as expected, it's just part of a more general worry about what it may mean for global stability," McCaig said.

Stocks began a sell-off last week, initially on fears about the Chinese economy. The slide continued as currencies in emerging economies including Argentina and Turkey slumped.

After Turkey's action Wednesday night, Asian stocks gained strongly.

Japan's Nikkei 225 jumped 2.1 percent to 15,294.54 and Hong Kong's Hang Seng rose 1.1 percent to 22,191.20. China's Shanghai Composite was up 0.3 percent at 2,044.93. South Korea's Kospi added 1.2 percent. Indonesia's benchmark climbed 1.7 percent.

In Europe, indexes initially gained sharply and then slid, turning negative before the open of U.S. trading.

Germany's DAX was 0.2 percent lower at 9,388.22. Britain's FTSE was down 0.3 percent to 6,551.21, while France's CAC 40 was off 0.6 percent at 4,160.34

Dow Jones Industrial Average index futures, which had initially indicated gains, plunged 126 points to 15,750. S&P 500 index futures were off 13.75 points to 1774.5.

Benchmark oil for March delivery was down 24 cents to $97.17 per barrel in electronic trading on the New York Mercantile Exchange.

In currencies, which were highly volatile, the euro fell 0.4 percent to $1.3618. The dollar erased early gains and fell sharply against the yen, down 0.6 percent to 102.34 yen

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AP reporter Teresa Cerojano contributed to this story from Manila, Philippines

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