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Markets steady despite massive sell-off in Japan

Published: Tuesday, Feb. 4, 2014 1:14 p.m. CDT

LONDON — Markets in Europe and the U.S. stabilized Tuesday after the turmoil of the previous day reverberated into the Asian trading session. Lingering concerns over the U.S. economy and emerging markets kept the mood jittery, however.

Traders held their nerve despite the earlier 4.2 percent dive on Tokyo's Nikkei 225, which sent the leading Japanese stock index to a four-month low.

David Madden, market analyst at IG, said stocks were "holding up relatively well" considering the massive sell-off in Japan overnight.

"Traders are treading lightly, not wanting to get stung if there is a sudden exodus from equities," he added.

In Europe, the FTSE 100 index of leading British shares fell 0.3 percent to close at 6,449.27 while Germany's DAX fell 0.6 percent to 9,127.91. The CAC-40 in France edged up 0.2 percent to 4,117.45.

On Wall Street, stocks rebounded a day after a disappointing manufacturing survey from the Institute for Supply Management saw them suffer their worst day in seven months. The Dow Jones industrial average was up 0.5 percent at 15,454 while the broader S&P 500 index rose 0.8 percent to 1,755.

The turmoil that has afflicted financial markets over the past few weeks has a number of causes. Some analysts think it's a long-overdue correction in stock values that will eventually ease. Many indexes had finished 2013 at record highs.

Others think it's likely to last longer, not least because the U.S. Federal Reserve is reducing its monetary stimulus. The stimulus, in its various guises, has helped shore up markets, particularly in developing countries from Brazil to Turkey to India, since the financial crisis.

Investors may also be getting nervous about the fact that U.S. lawmakers have yet to agree on a deal to lift the debt ceiling this month. If they don't, the U.S. faces the prospect of defaulting on some of its debts.

"What we're seeing in the markets so far this year may not be investors panicking about the turmoil in emerging markets, or the ongoing weaknesses in corporate earnings, or even the poor data coming out of the U.S.," said Craig Erlam, market analyst at Alpari.

"Instead, I believe these are all simply being used as an excuse for investors to allow for the significant correction that many investors have been calling for, for a number of months now," he added.

The focus of attention will likely remain on the U.S. this week as a run of economic data culminates on Friday with the nonfarm payrolls report for January. The jobs data often set the market tone for a week or two. Investors will be looking to see if the negative winter-related impact that was evident in the ISM survey has translated into job hiring, too.

There's also Thursday's policy meeting of the European Central Bank. Analysts say the bank will be under pressure to ease policy further as inflation remains stubbornly low despite recent signs of life in the eurozone economy.

Given the importance of upcoming events, many analysts think volatility will likely remain this week.

Earlier, Japan led the slide in Asian stocks. The Nikkei tumbled 4.2 percent to 14,008.47 and is down 14 percent over the past month. Elsewhere, South Korea's Kospi shed 1.7 percent to 1,886.85 and Hong Kong's Hang Seng declined 2.9 percent to 21,397.77 on its first day of trading following a 4-day weekend for Lunar New Year. Markets in China and Taiwan were closed.

There was a calmer tone in other financial markets, too. Among currencies the euro was down 0.2 percent at $1.3505 while the dollar rose 0.6 percent to 101.61 yen. Meanwhile, a barrel of benchmark New York crude was 95 cents a barrel higher at $97.40.

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