Fed uncertainty keeps weighing on markets

LONDON Uncertainty over the U.S. Federal Reserve's course of action ahead of a run of major economic news kept investors on edge Monday on the first trading day of the month. Turkish shares were faring worst as investors took fright after three days of anti-government protests.

Over the past few weeks, sentiment in the markets has largely swung to the tune of the U.S. economic data -- when the numbers have been strong, stocks have taken a hit as investors worried that the Fed might start to reduce the amount of financial assets it is buying every month. The Fed has been spending $85 billion a month buying bonds to push down interest rates in the hope of boosting the U.S. economy. The new money generated by the policy has helped shore up markets over the past few years despite a patchy global recovery.

"With ongoing fears over the implications of stimulus withdrawal from the Fed plus the fact we have the usual start-of-month economic readings to look forward to in the coming days, there's plenty of scope for further volatility," said Mike McCudden, head of derivatives at Interactive Investor.

In Europe, the FTSE 100 index of leading British shares was down 0.4 percent at 6,556 while Germany's DAX fell 0.7 percent to 8,291. The CAC-40 in France was 0.6 percent lower at 3,926.

Turkey's main stock market posted the biggest fall amid protests against the government of Prime Minister Recep Tayyip Erdogan. The Borsa Istanbul 100 Index was down 6.7 percent as investors worried about the destabilizing effect of the demonstrations on the economy.

Wall Street was poised for a steady opening following big falls late Friday -- Dow futures and the broader S&P 500 futures were 0.3 percent lower.

The focus later will likely be on the monthly U.S. manufacturing survey from the Institute for Supply Management. The survey kick starts a swathe of U.S. data that culminates on Friday with the monthly nonfarm payrolls report for May.

By the end of the week, the Fed will have a lot more fresh information to decide its next course of action.

"All the Fed can do is sit and wait for economic data to arrive, and then make its decision," said Chris Beauchamp, market analyst at IG. "Like us, they just have to wait and see."

It's also a big week in Europe, with the European Central Bank and the Bank of England announcing their latest policy decisions on Thursday. Particular interest will be on the ECB and what, if any, measures it decides to take to improve the fortunes of the ailing eurozone economy.

New figures released Monday suggested the eurozone may be stabilizing somewhat. The monthly manufacturing purchasing managers' index from financial information company Markit rose to 48.3 points in May from the initial estimate of 47.8 -- the upward revision takes the index nearer to the 50 threshold between expansion and contraction. The survey helped shore up the euro, which was trading 0.3 percent at $1.3030.

Earlier in Asia, Japan's Nikkei 225 index plummeted 3.7 percent to close at 13,261.82, as optimism over the country's economic outlook continued to wane -- the index has been particularly volatile over the past couple of weeks.

Part of that volatility has been due to the yen's appreciation from lows -- the yen is often in demand at times of market turmoil. The higher yen makes the country's exports potentially more expensive and that can depress growth. The yen has spent most of this year on the retreat in the aftermath of the Bank of Japan's big monetary stimulus. The dollar was 0.2 percent lower at 100.33 yen.

Elsewhere, South Korea's Kospi fell 0.6 percent to 1,989.57. Hong Kong's Hang Seng fell 0.5 percent to 22,282.19 and Shanghai's main index dropped 0.1 percent to 2,406.70 after mixed Chinese economic numbers. Though the official manufacturing PMI rose to 50.8 in May from 50.6 the previous month, an equivalent survey from HSBC fell to 49.2 from 50.4.

"So technically China exhibited growth and contraction at the same time," said Gary Jenkins, managing director of Swordfish Research. "You pays your money and you takes your choice."

Oil prices were fairly static, with the benchmark New York rate up 10 cents at $92.07 a barrel.