Markets falter ahead of US rate decision

Shares were losing ground in morning deals after some disappointing data here and in China and as investors steel themselves ahead of the statement from the US rate-setting committee this evening.

The FTSE 100 was down 35 points at 5376 and the FTSE 250 was 90 points lower at 10122.

The DJIA closed 45 points higher yesterday at 10698 as the market had begun to price in more stimulus from the Federal Open Market Committee in the form of a second bout of quantitative easing. That would support demand for shares as it adds to their relative attractiveness compared to other assets and cash - but not everyone believes a move is imminent.

Credit Suisse's Andrew Garthwaite, one of the top rated strategists, believes 'meaningful quantitative easing mark II will not restart unless there is a big shock to both growth and markets'.

With the committee expected to cut its growth forecasts for the US economy, investors are nervous that if the committee holds fire the recent rally in the stock markets could come to a halt.

The economic picture in China is also worrying investors as data today showed a marked fall in imports and shows government efforts to slow the runaway growth in the property markets have had their desired effect, adding to worries that demand there will slow.

And the pound was weaker against the dollar and the euro at $1.5800 and €1.2 after mixed news here added to worries about the likely pace of the recovery  and led some to question whether sterling has raced too far ahead of events.

Data on house prices and retail sales added to worries about the outlook for domestic consumption. Surveyors said house prices fell in July adding to the picture that last year's rally has run out of steam, while news from the British Retail Consortium showed slower growth in retail sales in July.  

There was some good news for those who believe the key is to rebalance the economy away from the services sector as official government data showed the trade deficit narrowed in July thanks to a sharp upturn in exports. 

But Vicky Redwood, senior UK economist at Capital Economics, points out the recent forward looking surveys showed orders falling. She said: 'We continue to doubt that any trade boost will be big enough in the near-term to offset the effects of the severe fiscal squeeze on consumers and the domestic economy.'

As for individual shares, TUI Travel topped the fallers after its profits warning and Intercontinental Hotels was also lower after it said the outlook remains uncertain. Shares in the pair were down 18p at 207.6p and 53p at £10.71.

Miners were dragged lower amid growing concern about the US and more importantly China, whose growth is expected to be the key driver for demand for raw materials.