Stock Markets Waver Before Fed Decision

Traders are growing increasingly worried about China's economy following another weak reading on retail sales as officials struggle to boost consumer activity AFP

US and European stock markets wavered on Monday as investors cautiously awaited the US Federal Reserve's first interest-rate cut since 2020.

In New York, the Dow was up but the wider S&P 500 and the tech-heavy Nasdaq were lower shortly after opening. In Europe, London was marginally higher but all the main continental exchanges were slightly lower.

The dollar fell ahead of the rate cut announcement, while haven investment gold rose to a new record high.

US stocks surged last week on positive economic news and as investors increasingly priced in a full half-point cut, with the Dow and S&P 500 reaching a whisker of their record highs.

Fed officials have widely signalled a rate cut Wednesday -- the first since the Covid recession four years ago -- but debate remains over whether it will be 25 or 50 basis points.

The high valuations stocks hit last week leaves them susceptible to a correction, said David Morrison, analyst at Trade Nation.

"Investors appear to be pricing in a Goldilocks scenario of cheaper borrowing costs, with more rate cuts to come, in an economy which shows few signs of a hard landing or recession," he said.

"If so, they may prove to be over-optimistic. Traders should prepare themselves for some large price swings on Wednesday evening."

Although expectations of a 50-basis-point cut have risen, some analysts warned that decision-makers may wish to avoid giving the impression they are concerned about the health of the world's largest economy.

Worries over the Chinese economy also weighed on sentiment.

Other central banks have policy meetings this week.

London's FTSE 100 index dipped Monday ahead of the Bank of England's own decision on borrowing costs due Thursday, one day after the Fed outcome.

The BoE is expected to keep its key rate unchanged after cutting it in August, while the European Central Bank further reduced borrowing costs last week as inflation cools.

Asian stock markets fluctuated on Monday, with Hong Kong edging up but Singapore slipping. Trade was muted with holidays in Tokyo and Shanghai.

On currency markets the yen briefly hit 140.07 per dollar -- its strongest level since July last year -- ahead of a policy meeting at the Bank of Japan (BoJ) starting Thursday.

Most analysts expect the BoJ to hold rates steady after a surprise hike at the end of July sparked market turmoil.

Gold struck a fresh record high of $2,589.70 per ounce.

Traders are keeping tabs on developments in China after more weak data on credit, retail sales, industrial production and house prices stoked concerns about the state of the world's number two economy.

The figures "collectively add to concerns that policy measures announced in recent weeks and months have so far failed to have any measurable impact in lifting economic growth", said National Australia Bank's Ray Attrill.

Oil prices have fallen recently on concerns about Chinese demand, but they jumped over one percent Monday as much US Gulf production is still offline after the passage of Hurricane Francine.

New York - Dow: UP 0.6 percent at 41,634.38 points

New York - S&P 500: DOWN 0.2 percent at 5,614.87

New York - Nasdaq Composite: DOWN 1.1 percent at 17,490.58

London - FTSE 100: UP 0.1 percent at 8,284.07

Paris - CAC 40: DOWN 0.2 percent at 7,453.53

Frankfurt - DAX: DOWN 0.4 percent at 18,631.09

Tokyo - Nikkei 225: Closed for a holiday

Hong Kong - Hang Seng Index: UP 0.3 percent at 17,422.12 (close)

Shanghai - Composite: Closed for a holiday

Euro/dollar: UP at $1.1133 from $1.1079 on Friday

Pound/dollar: UP at $1.3209 from $1.3125

Dollar/yen: DOWN at 140.44 yen from 140.76 yen