European stocks drop on Fed speculation, Glencore loss

European stock markets fell on Tuesday as speculation grew that the US Federal Reserve will soon start to scale back its stimulus programme, dealers said. The mining sector was hit as newly-merged mining giant Glencore Xstrata revealed that it plunged to a near $9.0-billion first-half loss due to a write-down on the value of its assets. "It looks pretty ugly today; the mounting worries about Fed's policy direction weakened the appetite for high returns and caused the rush of money out of emerging markets triggering the sell-off in Asia," said Gekko Markets trader Anita Paluch. "This in turned sparked the sell-off in Europe, adding to the worries." In late morning deals, London's FTSE 100 index of leading shares dropped 0.64 percent to stand at 6,424.59 points. Frankfurt's DAX 30 dipped 1.05 percent to 8,278.65 points and the CAC 40 in Paris shed 1.45 percent to 4,024.78 compared with Monday's closing values. Asian equities mostly fell on Tuesday after another weak lead from Wall Street, with attention returning to the Fed's stimulus programme as it prepares to release minutes of its latest meeting on Wednesday. Emerging markets took a beating on expectations the Fed's quantitative easing will start to dry up. Their currencies also suffered heavy selling, with the Indian rupee hitting another record low against the dollar. "Investors appear convinced the Federal Reserve will initiate tapering at next month's policy meeting," said analyst Ishaq Siddiqi at trading firm ETX Capital. "Asian markets have benefited hugely on easy Fed cash over the years but with a reduction in liquidity due to tapering to contend with, there is growing concern that capital outflows from emerging markets will rapidly accelerate." In Asia, Hong Kong stocks tumbled 2.20 percent, Tokyo slumped 2.63 percent and Shanghai was off 0.62 percent. In company news, Europe's leading miners were slammed by news of a vast loss for Glencore Xstrata. The mining giant reported a switch into a first-half net loss of $8.9 billion on Tuesday owing to merger write-downs. At the same time last year and on a comparable asset base, the business had made a net profit of $2.2 billion (1.65 billion euros). Publishing its first results since the merger, the new group took a charge of $7.6 billion to write down goodwill, meaning intangible assets which have a lower book value than the market value when they changed hands. In reaction, London-listed Glencore Xstrata saw its share price slide 2.77 percent to 293.6 pence. "The huge write-down of Xstrata's assets amidst a tough market, while they seek some stability in the board, is doing nothing to instil any confidence from investors," said analyst Mike McCudden at brokerage Interactive Investor. "Glencore still has a lot of work to do in integrating Xstrata, and after a run of disappointments recently, today's attempts to reassure investors will do little to stop them heading for the exits," he told AFP. The Switzerland-based group said the write-down reflected the poor outlook for the mining industry and increased risks for big expansion projects and for the development of new sites. In more gloomy news, Anglo-Australian mining giant BHP Billiton on Tuesday said net profit slumped 29.5 percent to US$10.88 billion in the year to June, citing slowing global growth and commodity price volatility. Shares in the world's biggest miner dipped 2.97 percent to 1,898 pence in London deals. Added to the negative backdrop, European steelmaker Arcelor Mittal was setback by a broker downgrade from Morgan Stanley. In response, the world's biggest steelmaker saw its shares slump 3.16 percent to 9.858 euros in Paris. In foreign exchange trading on Tuesday, the European single currency stood at $1.3393 compared with $1.3334 late in New York on Monday. The dollar eased to 97.42 yen from 97.56 yen. And India's rupee hit a new all-time low against the dollar on continuing fears that recent measures to stabilise the currency and kickstart the flagging economy will not work. On the London Bullion Market, the price of gold increased to $1,365.75 an ounce from $1,365 on Monday. Global markets have been in turmoil as investors fret over the future of the $85-billion-a-month Fed stimulus. Traders are worried that improving conditions mean the US economy will not need the help the central bank has been providing.