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BW Businessworld

US Stocks Fall As Kerry Speaks On Syria; Bonds Rise

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Stocks fell and US Treasury prices rose on Friday after Secretary of State John Kerry made a televised address making it clear that the United States will punish Syrian President Bashar al-Assad for a chemical weapons attack on civilians. 

The remarks stoked concerns that the US was ready to launch a military strike and added to a subdued tone of trading ahead of a three-day US holiday weekend, particularly on the back of limp data on US consumer income, spending and inflation.

Arguing that it was essential to show those who would use chemical weapons in future that the world will not let Syria get away with it, Kerry said the United States was joined by the likes of France, "our oldest ally," in its determination to respond to the attack, which he said killed more than 1,400 people in Damascus last week.

Those concerns about a US military strike made investors reluctant to short safe-haven US debt and helped send the dollar to a four-week high.

"People are uneasy not knowing what's going on, and it will probably be in the background at least so long as it continues," John Carey, portfolio manager at Pioneer Investment Management in Boston, which has about $200 billion of assets under management. "Syria isn't the crisis in and of itself, but if we do take military action, there could be repercussions that will hurt us. You never know, with military action, the kind of consequences you'll see. It's always very risky."

US stocks slipped, with the S&P 500 index likely to end August with its worst monthly showing in over a year. The market tone was already set by reports showing US consumer spending barely rose, up 0.1 per cent, and inflation was tame in July, with a price index for consumer spending edging up 0.1 per cent.
 
The Dow Jones industrial average was down 26.00 points, or 0.18 per cent, at 14,814.95. The Standard & Poor's 500 Index  was down 4.04 points, or 0.25 per cent, at 1,634.13. The Nasdaq Composite Index  was down 24.57 points, or 0.68 percent, at 3,595.73.

The 10-year yield eased to 2.755 per cent.

The dollar index, which measures its value against six major currencies, was at 82.060 not far from a four-week high of 82.263 touched earlier in the day.

Among emerging currencies, the Indian rupee has tumbled 10.4 per cent against the dollar so far this month, and looks to be heading for its largest monthly fall ever, according to Thomson Reuters data.

India is seeking support from other emerging market countries for a coordinated intervention in offshore foreign exchange markets after a currency rout the past three months, but at least one critical partner, Brazil, said it is not involved in such planning at this time.

Most major equity markets and many emerging currencies looked set to end the week and the month sharply lower as investors pull out of riskier assets in anticipation of the Fed action and some form of Western intervention against Syria.

The growing caution was reflected in a Reuters asset allocation poll of 54 fund managers across the United States, Europe and Japan. It showed investors had increased cash holdings to their highest level in a year, while also lifting exposure to equities and cutting bond positions.
    
Syria
Fears of a broader conflict in the Middle East eased slightly after Britain said it would not join any military action, although France said it still supported a move to punish Syrian President Bashar al-Assad's government for an apparent poison gas attack on civilians.

But that easing of concern didn't last even as Russia and China remained opposed to any move and China cautioning against any UN Security Council action until the investigation is complete.

Brent crude oil fell below $115 a barrel, off highs of $117 set earlier this week when military action seemed imminent. US crude was down US$1.12 to $107.67.

"The situation is still volatile," said Alex Yap, an analyst at energy consultancy FGE in Singapore. "If the US decides to attack, prices could be pushed higher."

Grim Month
MSCI's world equity index, which tracks shares in 45 countries, fell 0.3 percent on Friday, heading for its worst week since June 21.  European shares felt the pressure from a drop in oil stocks with the broader STOXX Europe 600 index down 0.9 per cent, taking its weekly losses to around 2.4 per cent.
 
Earlier, Japan's Nikkei lost 0.5 per cent despite new data that painted a brighter economic picture.

In other commodity markets, gold fell 0.8 per cent to below $1,400 an ounce, moving away from a 3-1/2 month high hit Wednesday when fears over Syria prompted a flight to safety.


(Reuters)