Stock indices in decline ahead of US open

Stocks have taken a battering today after the US Federal Reserve discussed the possibility of trimming its stimulus package last night.

European equities are down over 2% at lunchtime, following a wave of selling throughout the session.

Last night, Fed chairman Ben Bernanke said the current stimulus package may be reduced towards the end of this year or in early 2014. The comments encouraged traders to go short, as a rally in equity markets over the past few months has been fuelled by the Fed’s loose monetary policy, and dealers were spooked by the possibility of it being tightened.

In London, the FTSE 100’s largest component, the mining sector, is off nearly 4% after China posted weaker-than-expected manufacturing data overnight. The HSBC Chinese manufacturing purchasing managers index (PMI) contracted for a second month in a row, prompting dealers to sell mineral-focused stocks.

Across the pond, we are expecting the Dow Jones to open 100 points lower at 15,012. Adding to last night’s Fed-inspired nervousness, the US labour department has today reported an increase in the number of people claiming unemployment benefit, which also had a negative impact on US index futures.

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