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By Koh Gui Qing
NEW YORK (Reuters) -U.S. stocks sank on Thursday and brought to a halt a rally in global stocks, as upbeat American jobs data after the Federal Reserve's firm message that it will not be cutting interest rates any time soon offset China's latest reopening plans.
News that China's mainland border with Hong Kong will be reopened after three years had sent Asian-Pacific shares outside Japan to a four-month high overnight, but with both the dollar and bond market borrowing costs creeping up, Europe couldn't keep up.
The MSCI All-World index lost 0.8%. On Wall Street, the S&P 500 dropped 1.2%, the Dow Jones Industrial Average lost 1%, and the Nasdaq Composite dropped 1.5%.
"U.S. stock indexes appear neither cheap nor expensive enough to stir restless spirits," said Stephen Innes, a managing partner at SPI Asset Management.
"Outside of China's exuberance, investors are likely to remain relatively defensive and probably underweight bonds and stocks and reasonably neutral on commodities," Innes said, at least until the Fed's Jan. 31-Feb. 1 meeting is over.
The pan-European STOXX index ended down 0.2%, after gaining more than 3% in its first three sessions of 2023. London's FTSE 100 managed a respectable 0.6% rise as better-than-expected numbers from retail giant Next lifted the entire European sector, but it barely made up for a groggy Frankfurt and Paris. [.EU][.N]
Following the release on Wednesday of the minutes from the Fed's Dec. 13-14 meeting that showed the U.S. central bank strike a hawkish note as it stayed focused on reducing inflation, analysts said Friday's U.S. jobs report for December will be closely watched by investors. Signs of a still-tight labour market could fuel bets that more rate hikes are in the offing.
"A strong print tomorrow and I think you are going to get a fairly rapid repricing for a 50-bps (basis-point) hike at the next (Fed) meeting," said Derek Halpenny, head of research for global markets EMEA at MUFG.
Investors were already digesting their pre-payrolls appetiser, the ADP National Employment Report, which showed the private sector added more jobs in December than a month ago. It came a day after a moderate fall in U.S. job openings too.
China, meanwhile, has abruptly dropped ultra-strict curbs on travel and activity, fanning hopes that once the COVID-19 infection waves pass its giant economic motors can start firing again and offset the slowdowns in other parts of the world.
Thursday's biggest Asian gains included E-commerce and consumer stocks in Hong Kong thanks to the China mainland border news, which drove the Hang Seng to a six-month high.