Global stocks' Fed-inspired rally fizzles out

LONDON The rally in global stock markets fizzled out on Friday, two days after the U.S. Federal Reserve buoyed sentiment by keeping its monetary stimulus program in place.

Many traders had expected the Fed to start scaling back its asset purchase program, instituted in the aftermath of the 2008 financial crisis to help keep the U.S. economy afloat. The program was used to increase the flow of money available for loans to push down interest rates and spur growth.

The low interest rate environment proved a boon for stock markets, where investors fled with their money in search of higher returns.

That is a key reason why stock markets rejoiced when the Fed left its "quantitative easing" program untouched earlier this week -- even though the Fed is maintaining the program because the U.S. economic recovery is weak.

By Friday, however, that enthusiasm had worn off.

Britain's FTSE 100 was down marginally at 6,623.52 while Germany's DAX edged up 0.1 percent to 8,702.64. France's CAC-40 was almost 0.1 percent higher at 4,208.87.

Wall Street was expected to dip on the open, with Dow Jones industrial futures down 0.2 percent at 15,570. S&P 500 futures were down almost 0.1 percent to 1,716.75.

Trading throughout Asia was muted Friday, largely due to public holidays. Markets in Hong Kong, mainland China, Taiwan, South Korea and Malaysia were closed.

In Japan, the Nikkei 225 index gave up early gains to close 0.2 percent lower at 14,742.42. Australia's S&P/ASX 200 fell 0.4 percent to 5,276.70. Benchmarks in Indonesia, New Zealand, Thailand, the Philippines and Singapore fell. India's benchmark Sensex dropped 2.2 percent to 20,203.96 after the country's central bank unexpectedly raised interest rates in a bid to lower inflation.

Now that the Fed has spoken, investors will likely begin turning their focus to Washington and the political fighting between the White House and Congress over the approaching debt ceiling. It must be raised by Oct. 1 to avoid a government shutdown. Failure to do so could lead to the first-ever national default in U.S. history.

Market volatility will increase as the deadline approaches, said Evan Lucas of IG in Melbourne, Australia.

"This is the next key thing," Lucas said. "A lot of people are looking for a reason to sell."

Benchmark oil for October delivery was down 33 cents to $106.06 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.68 to close at $106.39 a barrel on Thursday.

In currencies, the euro was up 0.1 percent to $1.3546, while the dollar was down 0.1 percent at 99.34 yen.