Stocks retreat as bulls pause for breath

Thursday 21:10 GMT. World equities kicked off 2014 on a softer note as markets paused for breath following their recent strong run and as investors digested generally positive manufacturing data from across the globe.

In New York, the S&P 500 equity index fell 0.9 per cent from Tuesday’s record closing high. The benchmark soared nearly 30 per cent in 2013, its biggest yearly gain since 1997.

Across the Atlantic, the FTSE Eurofirst 300 fell 0.8 per cent after touching a five-and-a-half year high in early trading, while the Xetra Dax index in Frankfurt retreated from a record peak to finish 1.6 per cent lower.

Japanese markets were closed for a holiday.

US government bond prices reversed early losses with the yield on the 10-year Treasury down 2 basis points to 2.99 per cent, even after the release of encouraging US factory data.

The Institute for Supply Management’s index of manufacturing activity edged back to 57.0 last month from November’s two and-a-half year high of 57.3.

However, the headline reading was slightly higher than the consensus forecast, while the employment and new orders sub-indices rose.

James Knightley, an economist at ING, said that, in spite of the slight dip in the headline reading, the report suggested the manufacturing sector was in very good shape heading into 2014.

“The data also offer encouragement for a decent payrolls number next week, which will help to support market expectations that the Federal Reserve will continue to taper its asset purchases at coming Federal Open Market Committee meetings,” Mr Knightley said.

Separate data showed a hefty 1 per cent rise in construction spending in November after October’s 0.9 per cent increase.

Weekly jobless claims figures drew little comment given distortions due to the holiday period.

Expectations for the Fed to steadily reduce its monthly asset purchases this year helped the dollar gain 0.6 per cent against a basket of currencies.

The euro was 0.7 per cent and sterling 0.8 per cent lower, respectively. However, the dollar slipped 0.5 per cent against the yen after earlier touching a five-year high.

The US currency’s broad strength failed to keep gold from rebounding $18 to $1,223 an ounce, as technical buying emerged following the metal’s 28 per cent slide in 2013.

The ISM data came hard on the heels of a mixed bag of December manufacturing purchasing managers’ indices in Europe and China.

The final reading for the eurozone PMI came in at 52.7, unchanged from the “flash” estimate but up from 51.6 in November.

On a regional basis, the headline figure for Germany was revised up slightly to a 30-month high and readings from Greece, Italy and Spain were also encouraging, analysts said.

But the headline PMI in France was revised down slightly to 47.0, the lowest for seven months, and well below the 50 mark that nominally separates contraction from expansion.

“Today’s report continues to suggest that an ongoing recovery is taking place in the euro area,” said Francois Cabau, an economist at Barclays.

“Divergence between German and French final manufacturing headline indices was still the main message of the report, with few revisions from the flash prints.”

UK manufacturing activity remained relatively strong last month, albeit at a slightly slower pace than in November.

But figures from China prompted concerns about the country’s growth outlook.

The final reading of the HSBC/Markit manufacturing PMI for December came in at 50.5, unchanged from the “flash” estimate but down from 50.8 the previous month – and the weakest reading since September.

China’s official manufacturing PMI, released on Wednesday, also showed a slight fall last month.

“Thursday’s PMI should dispel any lingering doubts that the economic rebound since late summer has run its course,” said Mark Williams at Capital Economics.

“Most notably, activity among large firms – a recent source of strength – has turned a corner and is likely to cool further as policy makers move to rein in local government debt.”

Among industrial commodities, the prospect of increased crude supplies from Libya helped drive Brent oil down by $3.02 to settle at $107.78 a barrel

But copper reached a seven-month high in London of $7,460 a tonne amid concerns over shrinking supplies of the metal.

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