Diminished Fed stimulus hopes send global shares lower

Stocks on Wall Street fell as investors fretted about what a softer economy will mean for company profits after a number of high-profile corporate earnings warnings in recent days.

The weaker-than-expected start to the second-quarter US corporate reporting season, combined with expectations of slower economic growth in the world's leading economies, had encouraged hopes for the Fed to resume a policy of creating money to lower long-term interest rates, known as quantitative easing, or QE3.

There was some solace from data on Thursday that showed the number of Americans applying for jobless benefits fell last week to a four-year low, though some of that improvement may be temporary.

But analysts said it did little to sway the view the economic recovery has hit a soft patch.

"Investors are realising that quantitative easing won't come easy and earnings are starting to come in below expectations," said Claudia Panseri, global equity strategist at Societe Generale Private Banking.

A surprise rate cut in South Korea on Thursday following a 50-basis-point cut by Brazil on Wednesday evening also underscored the growing impact the slowdown was having worldwide.

But the lack of any monetary easing by the Bank of Japan on Thursday and limited clues in the latest minutes from the Fed's June policy meeting, released on Wednesday, suggest central banks are still cautious about the need for further easing.

The Fed minutes showed the world's biggest economy would have to weaken further before its central bank took any more easing steps. The minutes did however show some officials felt more stimulus was justified.

The euro fell to USD 1.2165, its lowest since mid-2010. The euro last traded at USD 1.2204, down 0.3% on the day.

The yen strongly outperformed both the euro and US dollar after the Bank of Japan limited itself to tweaking its asset buying program.

The dollar was last down 0.6% at 79.28 yen, holding above chart support at the 200-day moving average around 79.01 yen. Against the yen, the euro fell to a six-week low of 96.40 yen. It last traded at 96.74, down 0.9% on the day.

"As long as the door is open to QE3, it is difficult to see an environment where the dollar can prove materially and sustainably strong," said Camilla Sutton, chief currency strategist at Scotiabank in Toronto.

"Accordingly, we continue to expect the euro to trend lower, but avert a collapse."

Equities shunned

The FTSE Eurofirst 300 index ended down 1%, while the MSCI world equity index was down 1%, its seventh day of declines in a row.

"Anyone who's expecting some sort of quantitative easing come September ahead of the (US presidential) elections, I think is possibly talking their own book because at the end of the day, we're in an election year," said Brenda Kelly, market strategist at CMC Markets.

"It will be a bit of a consolidation effort over the next number of weeks as the bulls and bears fight it out."

The Dow Jones industrial average fell 43.71 points, or 0.35%, to 12,560.82. The Standard & Poor's 500 Index slipped 8.81 points, or 0.66%, to 1,332.64. The Nasdaq Composite Index dropped 33.62 points, or 1.16%, to 2,854.36.

Technology shares have been among the worst performers recently, bogged down by profit warnings from companies such as Advanced Micro Devices Inc