US economy recovering faster than expected

Markets slipped on Wednesday after Federal Reserve Chairman Ben Bernanke suggested the central bank may offer no more stimulus to the US economy, which has been recovering faster than expected.

Stocks had been trading higher until Bernanke noted in a testimony on Capitol Hill that gas prices will add to inflation while unemployment is falling faster than predicted.

The comments suggest the Fed is less likely to inject more money into the US economy - such stimulus tends to push inflation higher and is used to spur economic activity and job creation.

Markets turned lower, erasing gains made after an official statistics showed an upward revision to fourth quarter US economic growth figures, to an annualised rate of 3 per cent - the strongest since the spring of 2010 - from the previous estimate of 2.8 per cent.

In Europe, Germany's DAX closed up 0.5 per cent lower at 6,856.08 while the CAC-40 in France lost almost 0.1 per cent to 3,452.45. The FTSE 100 index of leading British shares ended 1.0 per cent lower at 5,871.51. The euro was down 0.9 per cent at $1.3340.

In the US, the Dow Jones industrial average was down 0.2 per cent at 12,982.64, while the broader Standard & Poor's 500 index fell by the same rate to 1,369.12.

Most of the world's leading indexes are back at levels they were trading at before last summer's massive sell-off. Stronger-than-anticipated US consumer confidence figures on Tuesday also helped push the Dow to close at 13,005.12 on Tuesday. The last time the benchmark closed above 13,000 was in May 2008, four months before the fall of the Lehman Brothers investment bank and the worst of the financial crisis.

Brief crack

The Nasdaq index briefly cracked 3,000 on Wednesday for the first time since the meltdown in dot-com stocks more than a decade ago.

Markets have been driven largely by rising hopes for the US economic recovery as Europe's debt crisis eases.

The taming of the debt crisis has been largely due to emergency liquidity loans that the European Central Bank has extended to banks.

The ECB made another €529.5 billion (US$712.4 billion) in low-interest loans to banks on Wednesday in the second round of its long-term credit infusion.

The uptake was modestly higher than the €489 billion ($657.9 billion) handed out to 523 banks at a first offering on December 21, and was slightly higher than market expectations. The offer of credit for three years was taken up by 800 banks, again more than anticipated.

The ECB's first round of three-year loans last December is often cited as one of the reasons why markets have been so buoyant this year as they eased concerns of an imminent credit crunch in Europe.

Banks used some of the money from the first round of loans to buy government bonds. That lowered borrowing costs for hard-pressed governments struggling to maintain large amounts of debt, and eased fears of a market meltdown from Europe's troubles with too much government debt.

- AP