Wall Street pares losses after Fed minutes (ext. FT)

The US dollar fell and stocks on Wall Street pared losses after minutes from the latest rate-setting meeting by the Federal Reserve showed many policy makers judged further monetary easing was warranted ‘fairly soon.

Global markets started the session on a sour note amid renewed wariness over the global economy.

But the likelihood of further additional stimulus to the world’s largest economy sooner, rather than later, helped put a cap on declines.

The S&P 500 closed fractionally higher, after dropping 0.4 per cent earlier in the session. Investors shunned earlier data showing the US housing market continued to gain traction. Instead, they focused on the tech sector after computer maker Dell reported a downbeat forecast for this quarter’s revenue.

The dollar sold off after the minutes, while the euro rose 0.4 per cent to trade above $1.25, a seven-week high.

“The surprisingly dovish minutes from the Fed’s July meeting suggest that policy makers are becoming increasingly frustrated with the anaemic pace of recovery and increase the odds that some form of additional Fed easing will be implemented at the central bank’s September meeting, said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange.

Commodities were mixed, with copper up 0.3 per cent to $3.46 a pound but Brent crude reversed earlier losses and closed to trade back near $115 a barrel level.

Gold rose 1 per cent to $1,654 an ounce, a fresh three-and-a-half-month high.

In Tokyo, exporters lost ground and the Nikkei 225 shed 0.3 per cent after Japan’s exports fell 8.1 per cent in July from a year earlier, due to weak demand from Europe and a 12 per cent drop in shipments to top trading partner China.

The news has revived worries that for all the salving of eurozone debt crisis angst and better data out of the US of late, the global economy is weak and the world’s second-biggest actor, China, may be struggling to avoid a “hard landing".

One potential comfort for investors is the belief that global central banks remain poised to provide support if required.

With that in mind, the minutes provided additional support.

Ben Bernanke, Fed chairman, has already warned that the economy faces “two main sources of risk. One, the eurozone crisis, seems to be easing for now. The other is the so-called US “fiscal cliff" about $600bn of tax increases and spending cuts that will hit in January unless Congress can reach a deal to prevent it.

Morgan Stanley says: “The potential impact to markets could include rising systemic risk, the Treasury 10-year yield moving past historic lows, flat earnings growth and rising short-term hedging demand.