European shares, euro retreat on worries over Fed policy

European stock markets fell on Friday as investors took profits after the US fiscal cliff deal and eyed growing concerns over the Federal Reserve's bond-buying scheme, dealers said.

Minutes from the Fed's December policy meeting indicated overnight that the US central bank's huge monetary easing measures could be scaled back sooner than expected.

In late morning deals, London's benchmark FTSE 100 index of top companies dipped 0.09 percent to 6,042.24 points, Frankfurt's DAX 30 index dropped 0.27 percent to 7,735.63 points and the Paris CAC 40 fell 0.50 percent to 3,702.39.

The Fed news has hampered market sentiment ahead of the release of crucial US non-farm payrolls data at 1330 GMT.

"The minutes turned out to be somewhat hawkish in nature and subsequently approached the topic bringing at least some of the current $85-billion monthly asset purchases to a halt," said Alpari analyst Craig Erlam.

"This was in large part owing to the perceived lack of effect being felt by such actions in the market. Overall this is pointing towards 2013 seeing the end of US QE (quantitative easing) as we know it.

"Equity markets are currently trading lower across the board as investors show a general lack of support for the discontinuation of the current US QE, along with the after-effect of worries surrounding the fiscal cliff bill."

The euro dived to $1.3003 -- which was the lowest level since December 12 and compared with $1.3052 late in New York.

"The dollar surged ... after the release of the minutes that indicated most members believed QE3 would not be in place beyond the end of the year," said Derek Halpenny, European head of global markets research at the Bank of Tokyo-Mitsubishi UFJ in London.

"The fact that the FOMC appears less enthusiastic about QE than the market expected has had a clear impact on equity market performance."

In addition, the dollar also struck its highest against the yen for more than two years, as yen-selling sentiment remained strong after Japan's new prime minister vowed to push for aggressive monetary easing.

The greenback soared to 88.33 yen, the highest level since July 2010, compared with 87.19 yen late Thursday.

And on the London Bullion Market, gold prices sank to $1.635.46 per ounce -- hitting a low point last seen in late August.

British investor sentiment was also hit by news that the British services sector shrank last month for the first time for two years, stoking speculation over contracting economic growth in the fourth quarter of 2012.

The Markit/CIPS purchasing managers' index (PMI) survey showed a reading of 48.9 in December, down from 50.2 in November. That was below the 50 mark which separates growth from contraction.

In Asia on Friday, Tokyo and Shanghai stocks advanced on their first trading day of 2013, but other markets retreated in line with losses on Wall Street.

Hong Kong dipped 0.29 percent, Sydney shed 0.36 percent and Seoul was off 0.37 percent.

Tokyo however climbed 2.82 percent and Shanghai shares closed up 0.35 percent.

Shares had broadly climbed on Wednesday and Thursday after US lawmakers agreed a last-minute deal to avert the fiscal cliff of tax hikes and spending cuts that could have sent the world's biggest economy into recession.

However, while the tax problem was addressed, another row is expected as a deal must be struck within two months to deal with billions of dollars of spending cuts as well as to raise the country's debt ceiling.

--

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