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ARGENTINA: Merval Tracks Foreign Markets, Falls After Powell Testimony

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Reuters

Traders are on edge before Powell's second day of Congressional testimony after his comments on Tuesday about the strength of the US economy opened the door to speculation that the Fed plans to quicken the pace of monetary tightening, a move investors worry could derail growth. Overall consumer prices, as measured by the price index for personal consumption expenditures (PCE), increased 1.7% in the 12 months ending in December, about the same as in 2016.

J.P. Morgan continues to expect four hikes in 2018, and another four in 2019, but a more pressing question is how the Fed might revise its message in the March dot plot rate projections.

Although a strong economy and low unemployment typically drive up inflation, it has remained low in recent years. Rate futures fell following Powell's remarks as traders began pricing in about a one-in-three chance of a fourth hike this year.

The S&P 500 fell 35.32 points, or 1.3 percent, to 2,744.28. Platinum for April went up 3.5 dollars, or 0.36 percent, to close at 988.10 dollars per ounce.

Some economists have raised concerns that moves by the administration of US President Donald Trump and the US Congress to boost economic growth through tax cuts and spending increases could raise the risks of overheating and inflation, but Powell said that the government's fiscal policy was now "more stimulative", which he said would help to boost chronically low inflation. "He may not have such an easy time today with the Senate Banking Committee".

In reaction to the comments, United States 10-year Treasury yields spiked 5 basis points to go beyond the 2.9% mark to 2.915%, while against the 10-year German bund, yields widened to their highest position in 14 months at 2.235%.

"In the USA we have at least three rate hikes this year, but in the euro zone, there was some exaggeration about where the inflation was heading so that is now being priced out and yields are moving to the downside", said DZ Bank strategist Daniel Lenz.

US stock indexes were listless in midday trading Wednesday, after earlier gains mostly evaporated, and the Standard & Poor's 500 was on track to close out February with a loss.

Data from Japan also added to the negative sentiment - factory output fell more than expected in January and retail sales declined last month from December.

But some investors speculated it could mean the central bank will get more aggressive in raising interest rates. Brent crude lost 0.1 percent to $64.66 per barrel.

Japan's Nikkei 225 slipped 105 points, or 0.47%. The rupee finally settled at 65.17, showing a loss of 30 paise or 0.46 per cent - its lowest closing since November 16.

The benchmark FTSE 100 was down 17 points or 0.24 percent at 7,264.77 in late opening deals after closing 0.1 percent lower the previous day.

US crude oil futures stood little changed at $61.65 per barrel after sliding more than 2 percent overnight.

A stronger greenback tends to weigh on commodities including crude as it makes them more expensive for non-U.S. buyers of dollar-denominated products. South Korea's Kospi edged down by 0.38%.

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