Fed rate-cut rally fades in markets

HONG KONG

Stock markets fell yesterday as traders took a step back following last week's rally, with Federal Reserve officials looking to temper expectations the U.S. central bank will cut interest rates several times next year.

Investors are also keeping tabs on the Bank of Japan's meeting this week, though recent speculation that it will shift away from its ultra-loose monetary policy has faded, with observers tipping a move in the new year.

Equities look set to end the year on a high after the Fed suggested it will begin loosening monetary policy after a string of data showed inflation coming down and the economy on course for a soft landing.

Asia struggled at the start of this week, with Hong Kong down one percent, while Tokyo, Shanghai, Sydney, Singapore, Mumbai, Taipei, Manila and Jakarta were also in the red.

A number of Fed officials lined up last week to douse expectations they will slash rates next year. Some observers have predicted as many as six cuts, but the bank's "dot plot" forecast saw three.

New York Fed chief John Williams told CNBC that "we aren't really talking about rate cuts", adding it was "just premature to be even thinking about" a March cut, which some experts have suggested.

"If we get the progress I'm hoping to see... of course it would be kind of natural... (to) move monetary policy over a period of years back to more normal levels".

The Bank of Japan's own decision is due today, and while there has been talk that it is about to shift away from years of ultra-loose policy, analysts do not expect it to do so for a few months.