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World markets sluggish despite US budget deal

LONDON/HONG KONG--Financial markets were sluggish Wednesday as investors remained focused on the prospect of a reduction in the U.S.'s monetary stimulus.

An apparent budget deal in the U.S. Congress failed to have much of an impact even though it would mean another partial shutdown of the U.S. government will be avoided. Most interest rests on the U.S. debt ceiling, which has to be raised early next year to avoid a debt default.

A week ahead of the next policy meeting of the Federal Reserve, investors appear to be holding back from making big trading decisions.

Following a run of solid economic data, particularly with regard to the labor market, there's a growing expectation in the markets that the Fed will decide to start reducing its US$85 billion worth of financial asset purchases.

However, any so-called tapering is expected to be accompanied with a renewed commitment to keep interest rates low. That, analysts say, helps explain why investors have held their nerve in recent weeks.

“It appears that the market is no longer thinking that tapering equals tighter monetary conditions,” said Kathleen Brooks, an analyst at

In Europe, the FTSE 100 index of leading British shares was up 0.3 percent at 6,541 while Germany's DAX rose 0.2 percent to 9,137. The CAC-40 in France was 0.7 percent higher at 4,121.

Wall Street was poised for a flat opening, with little economic news scheduled expected. Dow futures and the broader S&P 500 futures were both down 0.1 percent.

Asian markets fell Wednesday as fears that the Federal Reserve will soon wind down its stimulus programme overshadowed a US budget deal to avoid a repeat of the October government shutdown.

The dollar retreated against the yen after approaching highs not seen for five years, while the euro continued to receive support from the European Central Bank's decision last week to delay cutting interest rates further.

Tokyo slipped 0.62 percent, or 96.25 points to 15,515.06, Sydney fell 0.77 percent, or 39.4 points, to 5,104.2 and Seoul ended 0.78 percent, or 15.48 points, lower at 1,977.97.

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