Three-day stock sell-off slows but investors remains wary

US stocks were little changed today, in the wake of a three-session selloff, as investors look to the start of corporate earnings season.

The benchmark S&P index was holding above its 50-day moving average around 1,840, a support level which could trigger more declines if convincingly broken.

The index has managed to stay above the 1,840 level several times over the past month. Yesterday, the S&P 500 suffered its biggest three-day drop in two months and the Nasdaq posted its worst three-day decline since November 2011 as investors bid down Internet stocks and rotated into defensive names.

Earlier European shares and bonds were both dragged down by ongoing caution, amid renewed tension in Ukraine and signs the European Central Bank may not be as eager to begin large-scale stimulus as had been hoped.

After some early resistance, the region’s main bourses buckled, leaving London, Paris and Frankfurt 1 per cent lower and recent top performing Spanish and Portuguese indexes down more than 2 per cent.

Euro zone bond yields, a proxy for government borrowing costs, rose. The euro strengthened to its highest in a almost a week.

“The QE (quantitative easing) talk continues to be very much in focus in Europe,” said Jan von Gerich, the chief developed markets strategist at Nordea in Helsinki. “The ECB is clearly tempering the expectations, and I think the Ukraine news is also contributing to the weakness.”

Earlier, Asian stocks had managed to shrug off the gloom of a third day of sizable losses on Wall Street. Chinese shares , particularly those of banks, rose on stimulus hopes and helped to take MSCI’s benchmark emerging market index to its highest since mid-December.

Emerging markets have rebounded sharply in the past two weeks. Investors appeared to have largely put aside the worries about geopolitics, slowing U.S. stimulus and China’s stuttering economy that had fuelled a turbulent start to the year.

But Japan’s Nikkei fell 1.4 per cent on concern over a decline by global tech stocks. The yen also rose as the Bank of Japan kept its policy steady today and offered little to suggest more stimulus was likely in the near term.

The latest Wall Street shakeout comes as investors prepare for the first-quarter corporate earning season, which begins later when resources giant Alcoa reports results.

All three of the major US indexes - the S&P 500, Dow Jones Industrial Average and tech-focused Nasdaq - were expected to see little in the way of a rebound when trading resumes.

Rising tensions in Ukraine also tempered investor appetite for risk. Police detained 70 people occupying a regional administration building in eastern Ukraine overnight, but pro-Moscow protesters held out in a standoff in two other cities, in what Kiev called a Russian-led plan to divide the country.

The euro fell lower against the Japanese, down about 0.4 percent to 141.15 yen. But the cooling QE talk pushed it up against the dollar at $1.3769, rebounding from Friday’s five-week low of $1.3672.

After ECB policymakers aroused expectations at their policy meeting last week, some of the more conservative members suggested on Monday the bank was not yet ready to begin the kind of mass asset-buying used in the United States, Japan and UK.

“QE is definitely something that the ECB has been discussing, but we still think the bar to full blown-purchases of government bonds is still very, very high,” said Vasileios Gkionakis Global head of FX strategy at UniCredit in London.

World financial powers are set to gather this week at the IMF’s Spring Meeting. Washington engaged in some pre-meeting jockeying with China, warning Beijing that recent depreciation of the Chinese currency could raise “serious concerns”.

Much of the focus is likely to concentrate on the Russia’s moves into Ukraine. They are being met with the threat of stronger sanctions from the West, though Russian stocks and the rouble seemed largely unconcerned today.

Reuters