New York: Stock markets around the world edged lower on Tuesday as uncertainty over the European Central Bank’s (ECB) next policy move gave investors caution with many indexes near multi-year or all-time highs.

A sharp drop in euro zone inflation opened the door to a rate cut, taking European shares down 0.4%, a pullback from five-year highs. Investors remain split on how the ECB may decide to tackle what is set to be very subdued growth across the region throughout 2014, according to new European Commission forecasts.

“I wouldn’t be surprised if we get a rate cut, just to send a signal," said Markus Schomer, chief economist at fund manager’s PineBridge Investments. “A rate cut could at least help in lowering the value of the euro," adding that extending more ultra-cheap loans to banks would have greater impact.

But Koen Maes, global head of asset allocation at Dexia Asset Management said: “I don’t think they will cut rates, because frankly it wouldn’t change anything at this point in terms of impact on the economic recovery."

Central bank policy is also in focus in the US, with a run of mixed economic data casting doubt on when the Federal Reserve might start to slow its massive stimulus, which has taken both the Dow and S&P 500 to record levels this year.

The Institute for Supply Management’s October read on the US services sector came in at 55.4, above expectations.

The Dow Jones industrial average was down 94.14 points, or 0.60%, at 15,544.98. The Standard & Poor’s 500 Index was down 10.01 points, or 0.57%, at 1,757.92. The Nasdaq Composite Index was down 20.70 points, or 0.53%, at 3,915.89.

The benchmark 10-year US treasury note was down 13/32, with the yield at 2.6476%.

The prospect of both euro zone and the US central banks supporting the global economy helped boost MSCI’s world equity index 16% this year, though it fell 0.5% on Tuesday.

The euro traded just under $1.35 for most of the morning, holding near a seven-week trough of $1.3442 set on Monday. The US dollar index rose 0.2% against a basket of currencies, above a nine-month low on 25 October.

However, against the Japanese currency, the dollar fell about 0.3% to ¥98.25 following a reaffirmation by Japan’s central bank on Monday that it would do everything necessary to reflate its economy.

Central Banks Rule

Investors are now awaiting Friday’s US October non-farm payrolls data to see if the unemployment rate eases from the current 7.2%. Economists in a Reuters survey expect the rate to have edged up. The Fed has promised to hold rates ultra-low at least until unemployment drops to 6.5%, provided inflation remains mild.

Before that, third-quarter US gross domestic product (GDP) data on Thursday will help show how strong the momentum in the economy was before last month’s partial government shutdown.

Only China now looks likely to buck the tend for more monetary policy support. Premier Li Keqiang said in a speech published in full late on Monday that adding extra stimulus would be more difficult since printing new money would cause inflation.

Asian shares struggled as a result, slipping 0.1%, though Japan’s Nikkei stock average bounced off its lows and managed a 0.2% gain.

Australian shares also bucked the downtrend, rising 0.8% after the Reserve Bank of Australia kept its cash rate steady at a record low 2.5%, as was widely expected.

In commodity markets, gold slipped 0.2% while copper fell 0.1% in its fourth straight daily decline.

Brent crude dipped 0.2% at $105.99 per barrel, near a four-month low on worries over a prolonged period of reduced exports from Libya. US crude futures lost 0.7% to $93.92 per barrel. Reuters

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