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World stocks stumble as investors reassess gains

TOKYO/HONG KONG--Asian stocks fell for a third day Wednesday and European markets traded tepidly as caution spread ahead of corporate earnings and after record highs on Wall Street.

The just-started U.S. earnings season as well China's second quarter GDP figures, due next week, will help investors determine whether the recent run up in stock valuations has been justified. The Dow Jones industrial average last week topped 17,000 for the first time in its 118-year history.

“Investors globally have become a bit more cautious,” said IG strategist Ryan Huang in a market commentary.

European markets were muted in early trading. The FTSE100 in Britain lost 0.3 percent to 6,717.02 while France's CAC-40 was little changed, edging up 0.1 percent to 4,345.37. Germany's DAX gained nearly 0.1 percent to 9,779.13.

“Investors headed for the exits on negative overseas leads,” said Michael McCarthy, chief market strategist at CMC Markets in Sydney.

“In a glass half-empty trading environment, investors ignored higher iron ore prices, benign China inflation and a strong start to the U.S. reporting season by Alcoa.”

The U.S. earnings season got started after the closing bell Tuesday when aluminum maker Alcoa reported results that were better than investors expected. Wells Fargo, the No. 1 home mortgage lender in the U.S., reports on Friday.

The immediate attention of markets is likely to be on the release of minutes later Wednesday from the U.S. Federal Reserve's last policy meeting.

CMC Markets said in a commentary that the minutes are likely to sound more “dovish” than current economic conditions warrant since the Fed's last meeting was before June's strong jobs numbers were released.

Asian markets sank Wednesday, following a negative lead from Wall Street and talk of a possible correction for global equities after their rally over the past few weeks.

Sydney slumped 1.06 percent, or 58.4 points, to 5,452.5 and Seoul fell 0.31 percent, or 6.16 points, to 2,000.50. Tokyo clawed back most of the day's losses to end flat, dipping 11.76 points to 15,276.25.

Shanghai lost 1.23 percent, or 25.41 points, to finish at 2,038.61 while Hong Kong tumbled 1.55 percent, or 365.31 points, to 23,176.07.

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