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Overseas worries hamper US stock markets

January 27, 2014

NEW YORK (AP) — U.S. investors are being hit with new worries from overseas just as the economy at home appears to be strengthening.

Investors are anxious about slower economic growth in China, the world’s second-biggest economy, as well as the impact of political problems in countries like Argentina and Turkey. The Standard & Poor’s 500 index fell moderately on Monday after a big drop last week caused by China and emerging-market concerns.

These worries are coming to the forefront at a time when the Federal Reserve is pulling back on its economic stimulus and amid signs that U.S. company earnings may be close to peaking. That is further exacerbating a sense among investors that an almost 30 percent gain for the S&P 500 index last year may have been too much, too soon.

Topping the list of investor worries are:

CHINESE GROWTH: A report last Thursday showed that Chinese manufacturing is set to contract in January for the first time in six months, adding to evidence of a slowdown in that nation’s economy. China’s growth, at 7.7 percent in the fourth quarter, is still far stronger than that of the United States or Europe, but it has slowed from the double-digit rates of the previous decade. As the Chinese economy has grown, so has its importance to the world. In 1990, China was the biggest export market for only two countries. By 2012 that number had swelled to 32, according to data collated by strategists at U.S. Trust.

TURKEY: The Turkish lira has fallen six percent this year and touched multiple record lows as investors worried that a corruption scandal might destabilize the government. Political stability has been key to the country’s economic boom over the past decade. The lira fell to another record low against the dollar on Monday, and the slide only stopped when the nation’s central bank said it would hold an emergency meeting this week.

“Turkey has a geopolitical role in bridging the east and the west,” said Jorge Mariscal, chief investment officer for Emerging Markets at UBS Wealth Management. “So, you don’t want instability added to region that is already fairly unstable.”

ARGENTINA: The nation’s economy is beset by problems, including one of the world’s highest inflation rates, low rates of foreign investment and an inability to tap global credit markets after a massive debt default during its 2001-2002 economic crisis. Argentina’s government was forced to relax restrictions on the purchase of U.S. dollars on Friday as its foreign reserves dwindled. That move sent the currency even lower, and it now trades at eight pesos per dollar, a slump of 22 percent this year.

SOUTH AFRICA: In South Africa, a strike by tens of thousands of platinum miners for higher wages is raising the specter of violence in the streets and has pushed platinum prices lower. South Africa is the world’s top producer of the metal, which is used in medical, electronic and other industries. The South African rand has dropped 5 percent against the dollar this year.

AT HOME: The Federal Reserve is this meeting week and analysts expect that policy makers will further reduce their economic stimulus by cutting the central bank’s bond purchases by another $10 billion to $65 billion a month. Fed stimulus has helped underpin a rally in U.S. and global stock markets by keeping long-term interest rates extremely low. Now, as policy makers start to pull back on that stimulus, interest rates are expected to climb.

Investors are also tracking U.S. company earnings for the fourth quarter. Earnings have been “respectable, but hardly inspiring,” according to Russ Koesterich, BlackRock’s global chief investment strategist.


AP Markets Editor Carlo Piovano and AP Economics Writer Paul Wiseman contributed to this report.

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