North American stocks dive as rate pause stokes economy worries

North American stocks furthered a global slide in share prices on Friday after the U.S. Federal Reserve’s decision to keep interest rates unchanged at a record low.

The S&P/TSX composite index in Toronto declined 172.6 points, or 1.25 per cent, at the opening bell. In New York, the Dow Jones industrial average sank 217 points (1.3 per cent) while the S&P 500 dropped 21.5 points (1.1 per cent). The Nasdaq was off 57 points or 1.1 per cent at the open.

Stock markets tumbled, particularly in Europe, on concerns about what the rate pause indicates about the Federal Reserve’s opinion about the world’s economic outlook.

Though the Fed had not been expected to raise interest rates for the first time in more than nine years, investors appeared worried by the lack of guidance from the central bank.

MORE: U.S. interest rates on hold as Fed monitors global events

In its accompanying policy statement, the Fed revealed worries that “recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near-term”.

Though Fed Chair Janet Yellen said a rate hike this year is possible, much depends on incoming economic data – and that only adds to the uncertainty for investors.

“For the markets, it means more months of uncertainty, which investors do not like,” said Craig Erlam, senior market analyst at OANDA.

In Europe, Germany’s DAX was down 2.9 per cent at 9,935 while the CAC-40 in France fell 2.6 per cent at 4,533. The FTSE 100 index of leading British shares was 1.4 per cent lower at 6,098.

Oil drops

Expectations for U.S. interest rates are likely to continue to drive stock markets and the dollar in the final months of the year. On Friday, the U.S. dollar steadied against the euro after falling in the wake of the decision – the euro was down 0.2 per cent at $1.1418. The U.S. currency, meanwhile, remained weak against the Japanese yen, trading 0.5 per cent lower at 119.42 yen.

“The delay in monetary policy tightening by the Fed creates potential for a subdued dollar performance in the near term,” said Nick Bennenbroek, head of currency strategy at Wells Fargo Bank.

The dollar’s decline against the yen hit Japanese stocks hard. The country’s main stock index, the Nikkei 225, slipped nearly 2 per cent to 18,070.21, as traders fretted about the potential impact on Japanese exports stemming from the yen’s appreciation.

Elsewhere in Asia, sentiment held up better. South Korea’s Kospi added 1 per cent to 1,995.95 while Hong Kong’s Hang Seng was up 0.3 per cent to 21,924.39. The Shanghai Composite Index rose 0.4 per cent to 3,097.92.

The Fed decision to keep rates on hold hit oil markets too especially as it was largely based on concerns about the global economy. The benchmark U.S. rate was down $1.38 at $45.52 a barrel while Brent crude, the main contract for international oils, rose 68 cents at $48.40.