World shares slide on growth, Fed concerns, dollar flat

Adrop in euro zone factory output after a run of weaker-than expected U.S. data stalled an eight-day rise in world shares on Thursday, jangling the nerves of investors positioning for a shift in Fed policy next week.
Moves towards a diplomatic solution on Syria gave some support to financial markets, but doubts over what exactly the Fed will announce on September 18 increase the potential for near-term volatility.
"The Fed is still likely to taper next week or in October but the trajectory of the tapering that we had assumed can no longer be taken for granted," said Ned Rumpeltin, head of G10 FX strategy at Standard Chartered Bank.
Euro/dollar and dollar/yen one-week implied volatilities - a gauge of how sharp price swings will be next week - have shot up as investors try to guess when and how fast the Fed will start to run down its monetary stimulus.
The one-week euro/dlr implied volatility traded at around 7.85 percent, much higher than the equivalent one-month rate which was around 7.2 percent.
The one-week dollar/yen implied volatility was also trading much higher than the one-month level.
Uncertainty has grown with weaker-than-expected U.S. data, including jobs growth in August and consumer spending, home building, new home sales, durable goods orders and industrial production in July.
A Reuters poll of economists on Monday this week found most now see the Fed trimming its $85 billion monthly spend on bonds by about $10 billion. This was down from $15 billion in a poll before the jobs report.
The shifting views have put pressure on the dollar, which hovered near two-week lows against a basket of major currencies .DXY on Thursday. U.S. Treasury yields have dipped to nearer 2.8 percent from over 3 percent last week.
But the euro slipped against the dollar on Thursday and European shares ended a run that had taken them near a five-year high when data showed a surprisingly large drop in industrial output across the currency bloc in July.
That bolsters the case for the European Central Bank to keep monetary policy loose in the face of changes at the Fed and adds weight to the argument that it should even consider another rate cut.
Europe's broad FTSE Eurofirst 300 index .FTEU3 was down 0.1 percent by mid-morning at 1,248.33 points, edging away from a 5-year high of 1,258.09 points reached in late May this year.
The MSCI world equity index .MIWD00000PUS was slightly lower, with U.S. stock index futures pointing to further weakness when trading gets underway on Wall St. .N
ASIAN RELIEF
Reduced expectations of the degree of Fed tapering eased pressure on emerging market currencies, which had been driven up as the cheap U.S. money was pumped into high-yielding stocks and bonds, and are now falling as these trades reverse.
Indonesia's central bank unveiled a surprise rate hike to help the rupiah recover from a 4-1/2 year low. Other Asian central banks were expected to wait for next week's Fed decision before taking any action.
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS shed 0.2 percent while the stronger yen and downbeat economic data helped push Japan's Nikkei stock average .N225 down 0.3 percent.
In fixed income markets anticipation of the Fed trimming its stimulus combined with concerns abut domestic politics drove up Italy's borrowing costs at an auction of 7.5 billion euros ($10 billion) of new debt.
A cross-party Senate committee in Italy is due to resume a hearing later on whether to bar Silvio Berlusconi from political life, at the risk of prompting the former prime minister's allies to pull out the coalition government.
No decision by the Senate is expected until mid-October leaving investors in considerable uncertainty over whether the government has the strength to overhaul the economy and manage its budget deficit. <GVD/EUR>
In commodities, copper slipped 0.9 percent to $7,101 a tonne. An improved outlook for China's economy and the reduced risk of a strike on Syria have helped bring copper prices off the three-year lows plumbed in late June.
Gold skidded 1.8 percent to $1,342.56 an ounce, its weakest since mid-August while Brent crude added about 0.8 percent to $112.40 as investors watched diplomatic efforts to place Syria's chemical weapons under international control stepped up.
U.S. Secretary of State John Kerry and Russian Foreign Minister Sergei Lavrov were meeting in Geneva on Thursday to try to agree on a strategy to eliminate the chemical arsenal.

Syria vows to give up chemical weapons, Obama cautious about deal

Syria accepted a Russian proposal on Tuesday to give up chemical weapons but U.S. President Barack Obama said it was too early to tell if the initiative would succeed and he vowed to keep military forces at the ready to strike if diplomacy fails.
In a televised address to Americans, Obama pledged to explore Russia's proposal for Syria to place its chemical weapons under international control, while expressing skepticism about the initiative.
He said he had asked the U.S. Congress to postpone a vote on authorizing military action while Washington and its allies try to pass a United Nations resolution requiring Syrian President Bashar al-Assad to give up the weapons in a verifiable way.
In a sign of how hard that will be, Russian President Vladimir Putin said earlier that the chemical weapons plan would only succeed if Washington and its allies rule out military action.
In what amounted to the most explicit, high-level admission by Syria that it has chemical weapons, Foreign Minister Walid al-Moualem said in a statement shown on Russian state television that Damascus was committed to the Russian initiative.
"We want to join the convention on the prohibition of chemical weapons. We are ready to observe our obligations in accordance with that convention, including providing all information about these weapons," Moualem said.
"We are ready to declare the location of the chemical weapons, stop production of the chemical weapons, and show these (production) facilities to representatives of Russia and other United Nations member states," he said.
Obama said there had been "encouraging signs" in recent days, in part because of the U.S. threat of military action to punish Assad for what Washington says was the use of poison gas to kill 1,400 civilians in Damascus on August 21.
"It is too early to tell whether this offer will succeed," Obama said. "And any agreement must verify that the Assad regime keeps its commitments. But this initiative has the potential to remove the threat of chemical weapons without the use of force."
Moscow has previously vetoed three U.N. Security Council resolutions that would have condemned the Syrian government over the conflict.
The latest proposal "can work only if we hear that the American side and all those who support the United States in this sense reject the use of force," Putin said in televised remarks.
Obama said he was sending Secretary of State John Kerry to meet Russian Foreign Minister Sergei Lavrov in Geneva on Thursday for further talks, and he himself would continue discussions with Putin.
Amid the whirlwind of diplomatic activity focused on the response to the chemical weapons attack, the civil war resumed in earnest on Tuesday with Assad's jets again bombing rebel positions in the capital.
UNITED NATIONS
An initial U.N. Security Council resolution, drafted by France, would demand that Syria make a complete declaration of its chemical weapons program within 15 days and immediately open all related sites to U.N. inspectors or face possible punitive measures.
The French draft resolution, seen by Reuters, adds that the Security Council would intend "in the event of non-compliance by the Syrian authorities with the provisions of this resolution ... to adopt further necessary measures under Chapter VII" of the U.N. Charter.
Chapter 7 of the U.N. Charter covers the 15-nation Security Council's power to take steps ranging from sanctions to military interventions. It is the reference to Chapter 7, U.N. diplomats say, that has made Russia reluctant to support the initial French draft.
Russia has made clear it wanted to take the lead on any resolution. Lavrov told his French counterpart that Moscow would propose a U.N. draft declaration, the Russian Foreign Ministry said in a statement.
Obama said he would work with allies as well as Russia and China, both of which have veto powers on the Security Council, to craft a U.N. resolution. He gave no timetable for how long he would wait for such talks to play out.
"Meanwhile, I've ordered our military to maintain their current posture to keep the pressure on Assad and to be in a position to respond if diplomacy fails," Obama said.
The president also reiterated his arguments for why it would be in the national security interests of the United States to punish Syria for using chemical weapons if diplomacy fails.
"If we fail to act, the Assad regime will see no reason to stop using chemical weapons," Obama said. "As the ban against these weapons erodes, other tyrants will have no reason to think twice about acquiring poison gas and using them."
PUTIN: "NO THREAT OF FORCE"
The United States and France had been poised to launch missile strikes to punish Assad's forces, which they blame for the chemical weapons attack. Syria denies it was responsible and, with the backing of Moscow, blames rebels for staging the attacks to provoke U.S. intervention.
The White House said Obama, British Prime Minister David Cameron and French President Francois Hollande had agreed in a telephone call on their preference for a diplomatic solution, but that they should continue to prepare for "a full range of responses."
While the prospects of a deal remain uncertain, the proposal could provide a way for Obama to avoid ordering military strikes. Opinion polls show most Americans are opposed to military intervention in Syria, weary after more than a decade of war in Iraq and Afghanistan.
Whether international inspectors can neutralize chemical weapons dumps while war rages in Syria remains open to question.
Western states believe Syria has a vast undeclared chemical arsenal. Sending inspectors to destroy it would be hard even in peace and extraordinarily complicated in the midst of a civil war.
The two main precedents are ominous: U.N. inspectors dismantled the chemical arsenal of Iraqi leader Saddam Hussein in the 1990s but left enough doubt to provide the basis for a U.S.-led invasion in 2003. Libyan leader Muammar Gaddafi was rehabilitated by the West after agreeing to give up his banned weapons, only to be overthrown with NATO help in 2011.
SYRIAN REBELS DISMAYED
The Syrian war has already killed more than 100,000 people and driven millions from their homes. It threatens to spread violence across the Middle East, with countries endorsing the sectarian divisions that brought civil war to Lebanon and Iraq.
The wavering from the West dealt an unquestionable blow to the Syrian opposition, which had thought it had finally secured military intervention after pleading for two and a half years for help from Western leaders who vocally opposed Assad.
The rebel Syrian National Coalition decried a "political maneuver which will lead to pointless procrastination and will cause more death and destruction to the people of Syria."
Assad's warplanes bombed rebellious districts inside the Damascus city limits on Tuesday for the first time since the poison gas attacks. Rebels said the strikes demonstrated that the government had concluded the West had lost its nerve.
"By sending the planes back, the regime is sending the message that it no longer feels international pressure," activist Wasim al-Ahmad said from Mouadamiya, one of the districts of the capital hit by the chemical attack.
The Russian proposal "is a cheap trick to buy time for the regime to kill more and more people," said Sami, a member of the local opposition coordinating committee in the Damascus suburb of Erbin, also hit by last month's poison gas attack.
Troops and pro-Assad militiamen tried to seize the northern district of Barzeh and the eastern suburb of Deir Salman near Damascus airport, working-class Sunni Muslim areas where opposition activists and residents reported street fighting.
Fighter jets bombed Barzeh three times and pro-Assad militia backed by army tank fire made a push into the area. Air raids were also reported on the Western outskirts near Mouadamiya.
However, Damascenes in pro-Assad areas were grateful for a reprieve from Western strikes: "Russia is the voice of reason. They know that if a strike went ahead against Syria, then World War Three - even Armageddon - would befall Europe and America," said Salwa, a Shi'ite Muslim in the affluent Malki district.
(Additional reporting by John Irish in Paris, Louis Charbonneau at the United Nations, Thomas Grove and Steve Gutterman in Moscow and Steve Holland, Jeff Mason, Mark Felsenthal, Patricia Zengerle, Arshad Mohammed, Richard Cowan, Paul Eckert and Roberta Rampton in Washington

Gold buyers rush to order as import rules clarified

Gold buyers lined up to restart imports on Wednesday as the customs department clarified new rules, putting the world's biggest bullion buyer back in the market after a six-week gap and threatening government efforts to underpin the rupee.
About a quarter of a tonne of gold waiting at Mumbai airport should head to India's biggest gold market, Zaveri Bazaar, where sales are nearly $10 million a day, and jewellers said they would place fresh import orders as early as Thursday.
"Around 250 kg of gold, which is stuck at the airport, will get released after the order. New shipments could start within the next 2-3 days," said Bachhraj Bamalwa, director at the All India Gems and Jewellery Trade Federation.
The Reserve Bank of India (RBI), in a bid to help the government stem the tide of gold imports which had pushed the current account deficit to a record high, told importers on July 22 that a fifth of their purchases would have to be turned around for export.
But the rule's sketchy details caused buyers to hold off and instead use stocks that had piled up in April and May when record imports of 304 tonnes provoked the government into hiking duty to an all-time high of 10 percent.
On Wednesday, the Indian customs department issued its guidelines on how the central bank's call for gold imports to be split 80 percent for domestic use and 20 percent for export would be monitored.
ORDERING TOMORROW
The move aims to boost exports but could also rein in imports to around 30 tonnes a month - about half average volume - and keep India on track to meet the government's target of 845 tonnes in the 2012/13 fiscal year.
But domestic buying could surge later this year as a better than expected monsoon is expected to increase disposable incomes of farmers in rural areas, who make up about 60 percent of Indian gold demand.
"My export orders are pending since last month, I'll request my bank to place an order for 20 kg tomorrow morning," said Kumar Jain, proprietor of Umed Exports, which ships jewellery to the United States, Europe and the Middle East.
In a more than 40-clause document, the customs department laid out details on authorised importers, bonds to be given by importers over duty payments and "surprise audit or checks" by custom officers to ensure compliance.
And in a clause that may cause problems it said importers would not be able to make a third order until they had evidence of payment to exporters in the form of an inward remittance certificate, which can take nine months.
"This will make our life difficult at the time of the third import," said Pankaj Kumar Parekh, vice-chairman of the Gems and Jewellery Export Promotion Council (GJEPC).
Imports by special economic zones, which export about 20-30 tonnes a year, will not be included in the import restrictions. Domestic jewellery exports outside these areas are about 60-70 tonnes a year.

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U.S. President Barack Obama's effort to win legislative backing for military strikes against Syria passed its first hurdle on Wednesday when a Senate committee voted in favor, but the narrow margin of victory showed the depth of U.S. caution.
In a possible sign of internal unrest in Syrian President Bashar al-Assad's ruling Alawite sect in the shadow of a likely U.S. intervention, Syrian opposition figures said General Ali Habib, a former defense minister, had defected. Syria denied the report.
Washington and Syria's main backer, Russia, remained publicly at odds as Obama tried to build his case for military action over chemical weapons before flying to Russia for a G20 summit hosted by President Vladimir Putin on Thursday.
Putin said U.S. congressional approval without a U.N. Security Council resolution would be an act of aggression, and accused U.S. Secretary of State John Kerry of lying by playing down the role of the militant group al Qaeda with rebel forces.
With Obama focused on building international support, administration officials kept up their campaign of persuasion in Congress, where deep U.S. skepticism about going to war was reflected in a House of Representatives hearing.
Still, after much jockeying over the exact wording, the Senate Foreign Relations Committee approved a resolution authorizing the use of military force in Syria in a vote that avoided party lines, with Democrats and Republicans on both sides. The action cleared the way for a vote in the full Senate, likely next week.
The committee voted 10-7 in favor of a compromise resolution that sets a 60-day limit on any engagement in Syria, with a possible 30-day extension, and bars the use of U.S. troops on the ground for combat operations.
The administration is trying to balance the views of many in Congress who want a narrowly defined resolution against hawks such as Senator John McCain, who has pushed for a broader resolution that would allow direct U.S. support for rebels.
The Senate committee adopted amendments proposed by McCain with policy goals of degrading Assad's ability to use chemical weapons, increasing support for rebel forces and reversing battlefield momentum to create conditions for Assad's removal.
The authorization still faces significant resistance in Congress, where many lawmakers fear it could lead to a prolonged U.S. military involvement in Syria's civil war and spark an escalation of regional violence.
The full Senate is expected to vote on the resolution next week. The House of Representatives also must approve the measure.
RUSSIAN TENSIONS
Obama said he would continue to try to persuade Putin of the need for punitive strikes on Assad for using chemical weapons when the two meet in St. Petersburg.
In Stockholm en route to Russia, Obama said the credibility of America and of the world was at stake. He appeared to take umbrage at a reporter's question about the "red line" he set for Assad at an August 2012 White House news conference.
"I did not set a red line. The world set a red line," Obama said, referring to bans on chemical weapons use.
Putin again questioned Western evidence. He accused Kerry outright of lying when, in urging Congress to approve strikes on Syria, Kerry played down the role of al Qaeda in the rebel forces. "Al Qaeda units are the main military echelon, and they know this," Putin said.
"He is lying and knows he is lying. It's sad."
Earlier, Putin had said in a pre-summit interview with the Associated Press that he could not absolutely "rule out" Russia supporting a U.N. Security Council resolution to punish Assad - if it could be proved he had used poison gas.
Briefing members of Congress in Washington, Kerry said those comments were "hopeful" and "there may be a road forward where Russia would consider not blocking action."
Kerry played down concerns that any U.S. military strike over chemical weapons might provoke a clash with Russia.
"Foreign Minister (Sergei) Lavrov has made it clear ... Russia does not intend to fight a war over Syria," Kerry told a hearing of the House Foreign Affairs Committee.
A senior Western official said that while Moscow was unlikely to say so in public, there were signs Russian officials believe Assad was responsible for the deaths on August 21 and that it had strained Russian support for him - providing an opening for a new, concerted drive to end the conflict.
However, Putin's characteristically blunt tone towards the U.S. position appeared to limit prospects for a breakthrough in a stalemate that has prevented international action to rein in a conflict that has killed more than 100,000 Syrians and left millions homeless but which neither side has been able to win.
"DEFECTION"
Numerous defections over the past two years by senior commanders, either to the rebel Free Syrian Army or into exile abroad, have not led to a collapse of Assad's defenses.
Habib, the former defense minister, had been under house arrest since he resigned in protest at Assad's crackdown on demonstrators in 2011. He managed to reach the Turkish border late on Tuesday with Western help, Kamal al-Labwani of the Syrian National Coalition told Reuters.
Other sources also said Habib had fled but Syrian state television denied he had left his home. Turkey's foreign minister said he could not confirm the general had defected.
The flight of Habib, if confirmed, would lend credibility to suggestions that parts of the Alawite community may be turning against Assad. Previous high-level defections have generally involved Sunni officers.
"Ali Habib has managed to escape from the grip of the regime and he is now in Turkey, but this does not mean that he has joined the opposition. I was told this by a Western diplomatic official," Labwani said from Paris.
A Gulf source told Reuters that Habib had crossed the Turkish frontier late on Tuesday with two or three other people. He was taken across the border in a convoy of vehicles.
Kerry said he did not know if the report of Habib's defection was correct but "there are currently defections taking place. I think there are something like 60 to 100 in the last day or so, officers and enlisted personnel."
In an interview on Britain's Sky News, Bouthaina Shaaban, a senior adviser to Assad, made no mention of the defection. She said the world should wait for the outcome of a United Nations investigation into the use of chemical weapons and blamed groups linked to al Qaeda for the alleged gas attack last month.
MILITARY PLANS
Following the failure of British Prime Minister David Cameron to win parliamentary backing for air strikes last week, Washington has been struggling to build an international coalition for action in the absence of a U.N. resolution.
Kerry told lawmakers that at least 10 countries had pledged to participate in a U.S. military intervention in Syria, but he did not identify them nor say what roles they might play.
France and Turkey are the most significant military powers lining up behind Obama. The French parliament debated Syria on Wednesday, though President Francois Hollande does not need approval for action.
French Prime Minister Jean-Marc Ayrault told parliament that failure to strike Assad would send a message to the likes of Iran and North Korea that they could defy Western powers with impunity, notably over concerns about their nuclear programs.
Obama has won the backing of key figures in the U.S. Congress, including among his Republican opponents.
But in a sign of the tough road still ahead, Democrats and Republicans took both sides in the Senate committee vote. Two Democrats, Tom Udall and Chris Murphy, joined Republicans Marco Rubio, John Barrasso, James Risch, Ron Johnson and Rand Paul in voting no.
In the Senate, Democratic leader Harry Reid is guardedly confident that a majority of the 100 members will vote yes, but is still unsure if he can get the 60 votes needed to overcome Republican procedural roadblocks, aides said.
In the 435-member House, a senior Republican aide predicted that most of the 50 or so Republicans backed by the anti-big government Tea Party movement will vote no. A number of Democratic liberals are also expected to vote against a resolution, placing the final outcome in doubt