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October, 1, 2016

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Fed-fueled equity rally fades

LONDON -- European stocks slid Friday as investors paused for breath following a global rally after U.S. and Japanese central banks kept their easy-money policies in place.

London's benchmark FTSE 100 index dropped 0.1 percent compared with the closing level on Thursday to stand 6,902.42 points in late morning trading.

In the eurozone, Frankfurt's DAX 30 declined 0.1 percent to 10,665.01 points and the Paris CAC erased 0.3 percent in value to stand at 4,496.55.

Investors also took their foot off the pedal in Asia Friday after two days of strong gains while the U.S. dollar recovered some ground on the yen after the Fed's decision to hold interest rates sent it tumbling.

"The Fed-fueled rally that catapulted shares out of the summer doldrums this week is showing some signs of fatigue," noted analyst Jasper Lawler at trading firm CMC Markets.

"The immediate reaction across markets to the Fed's decision to keep rates on hold again has been that of lower treasury yields, higher stock prices and a weaker dollar.

"This reflects an understanding that the Fed is not about to raise rates for at least three months. It could easily be longer if U.S. economic data remains sluggish."

World equities and high-yielding currencies have soared since Wednesday when the Bank of Japan said it would target boosting inflation and the Fed also pressed on with policies that makes cash cheap.

Tepid Eurozone Growth

Data showing eurozone economic growth has slowed to its weakest pace since January 2015 failed to rekindle positive sentiment.

IHS Markit said its preliminary September Composite Purchasing Managers Index (PMI) for the eurozone fell to 52.6 points from 52.9 points in August, although it still came in above the 50 points expansion point.

Economist Florian Hense at Berenberg Bank said the PMI figures indicate the eurozone economy likely expanded by 0.3 percent in the third quarter, the same rate at which it grew in the second quarter.

Revised official data also showed that the French economy contracted by 0.1 percent in the second quarter, although the PMI data came in at a 15-month high at 53.3 points after 51.9 in August.

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