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Wall Street recovers from early sell-off

Thursday 21:10 BST. US stocks recouped sharp early losses but the mood remained nervous as nagging uncertainty about the outlook for global growth triggered volatile trading conditions - particularly given the likely end of the Federal Reserve's quantitative easing programme later this month.

But European equities ended firmly in the red as European Central Bank president Mario Draghi's post-policy meeting press conference offered only limited details about planned purchases of private sector assets.

In New York, the S&P 500 index finally settled unchanged at 1,946, having earlier fallen as much as 1 per cent. The rally left the US equity benchmark more than 3 per cent down from a record closing high reached two weeks ago.

The CBOE Vix volatility index - a gauge of the cost of insuring an equity portfolio - also reversed course to stand 3.2 per cent lower in late trade.

Recently-battered US small-cap stocks had a better day, with the Russell 2000 index bouncing 1.1 per cent.

Wall Street's rebound came after the FTSE Eurofirst 300 index of leading European stocks tumbled 2.2 per cent, its biggest one-day drop in 15 months. The Nikkei 225 in Tokyo shed 2.6 per cent, its worst day since mid-March.

"The Fed will turn off the QE tap later this month and in our opinion volatility has been increasing as the market adjusts," said Jim Reid, macro strategist at Deutsche Bank.

"We've long felt that the Fed pulling back from QE would be an issue for markets and it's tempting to be bearish here. However, credit markets have corrected a long way already and we are getting closer to a seasonally strong period into year-end and into the start of the new year, assuming we can get past what can often be a volatile month in October."

Meanwhile, Mr Draghi fleshed out the ECB's plans to buy private asset-backed securities and covered bonds - but avoided any firm indication as to the size of the purchase programme.

"Keep in mind, when it comes to unconventional monetary policy designed to stabilise and encourage economic growth and break a deflation spiral, size matters," said Adrian Miller, director of fixed income strategy at GMP Securities.

"And at first glance the ECB's initial stab at its purchase programme will not be large enough."

Neither did Mr Draghi offer any hints to suggest further policy initiatives - such as a programme of full-blown quantitative easing by the ECB - were imminent.

"The ECB looks set to adopt a wait and see stance as it assesses the impact of its 'targeted' longer-term refinancing operations and ABS/covered bond purchases before considering further action," said Nick Stamenkovic, macro strategist at RIA Capital Markets.

"Indeed, continued disappointing euro area growth and the risk of a further fall in inflation keeps the door open for QE in early 2015 - but the hurdle to such a move is clearly high."

The lack of fresh initiatives appeared sufficient to prompt a rally for the euro following its recent slide to a two-year low against the dollar. The single currency was up 0.3 per cent at $1.2663.

Peripheral eurozone government bond prices fell sharply, with Spain's 10-year yield rising 7 basis points to 2.14 per cent and Italy's adding 4bp to 2.33 per cent. The German 10-year Bund yield held steady at 0.91 per cent.

The euro's bounce came as the dollar's recent rally stuttered. The US currency was down 0.4 per cent against a weighted basket of its rivals, having hit a succession of four-year highs over the past few weeks.

The yield on the policy-sensitive two-year Treasury bond was up 2 basis points at 0.54 per cent ahead of the release today of September non-farm payrolls. The 10-year yield was up 4bp at 2.44 per cent following Tuesday's steep decline.

"The ADP employment report [on Wednesday], which revealed a 213,000 increase in employment in September, suggests that the surprise drop in non-farm payrolls to a 142,000 gain in August was an aberration and is very likely to correct [on Friday]," said Derek Halpenny at Bank of Tokyo Mitsubishi-UFJ.

"If there is little revision to the August reading it may mean an above average increase - certainly we see upside risks to Friday's payroll reading."

News of an unexpected drop in initial jobless claims last week added weight to the view that the US labour market was improving.

Industrial commodities continued to drop amid worries that a slowdown in global growth could hit demand. Copper fell 1.2 per cent in London to a five-month trough of $6,600 a tonne, while Brent oil settled 74 cents lower at $93.42 a barrel, after touching a 28-month low of $91.55.

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