(Adds quotes, new prices)
* GameStop, AMC soar as hedge funds cut short positions
* Dollar gains on safe-haven buying, Treasury yields fall
* All eyes on Federal Reserve policy statement
By Matt Scuffham and Herbert Lash
NEW YORK, Jan 27 (Reuters) - Stocks fell around the world
and the dollar rose on Wednesday as investors turned more
cautious on fear of stretched stock valuations and the economic
impact of the COVID-19 pandemic, with the Federal Reserve
meeting later in the session a focus.
European stocks tumbled and the euro slid as extended
coronavirus lockdowns drove the German government to slash its
growth forecast for 2021, while talk of further interest rate
cuts by the European Central Bank hit banking stocks.
The pan-European STOXX 600 .STOXX closed down 1.2% in its
biggest single-day percentage fall in more than five weeks.
U.S. equity declines were exacerbated by hedge funds dumping
long positions to cover a short squeeze sparked by a sharp rally
in GameStop GME.N and AMC Entertainment Holdings AMC.N ,
which each more than doubled in heavy trade. Volume the past three days in GameStop has averaged almost
185 million shares a day, an enormous jump from an average 6.73
million shares in the first week of trading this year.
The stampede of retail investors has disrupted the
marketplace, taking seemingly rational investments and turning
them upside down, said Jack Ablin, chief investment officer at
Cresset Capital Management in Chicago.
"The retail investors are identifying the hedge fund fat
cats shorting shares and making them pay," Ablin said.
The Dow Jones Industrial Average .DJI fell 1.07%, the S&P
500 .SPX lost 1.47% and the Nasdaq Composite .IXIC dropped
1.18%.
MSCI's benchmark for global equity markets .MIWD00000PUS
fell 1.3% to 657.4, while its index for emerging markets stocks
.MSCIEF fell 1.05%.
AMC rose 206%, GameStop 131% and Express Inc EXPR.N 255%
on the New York Stock Exchange.
Investors parsed through earnings reports from companies
including Boeing BA.N and Microsoft MSFT.O ahead of the
Fed's policy statement at 2 p.m.
Boeing Co BA.N posted a record annual loss but shares in
Microsoft hit a record high after reporting its Azure cloud
computing services grew by 50%. Quarterly earnings from U.S. tech giants including Facebook
FB.O and Apple AAPL.O , are due after the bell at 4 p.m.
In currency trading, the dollar index =USD rose 0.403%,
with the euro EUR= down 0.39% to $1.2113.
The Japanese yen JPY= weakened 0.44% versus the greenback
at 104.07 per dollar.
U.S. Treasury yields slid in line with weaker stocks as risk
appetite hit a wall ahead of the Fed's policy announcement.
The U.S. central bank is likely to maintain its
ultra-accommodative policy as the pandemic weighs on the
economy, but investors want to see the Fed's economic outlook
given likely strong fiscal measures under the new U.S.
administration.
Investors see bonds as a safe haven, especially given the
short-covering and disruption occurring in equity markets, said
Ellis Phifer, market strategist, at Raymond James in Memphis.
"If it continues to spread, you get more margin calls, more
firms having to potentially shut down and they're leveraged so
they start selling more and you can end up in a bad spot,"
Phifer said.
The 10-year U.S. Treasury US10YT=RR note fell 0.03 basis
points to yield 1.011%.
Gold prices fell to a more than one-week low, pressured by
concerns over the U.S. stimulus bill and strength in the dollar.
Spot gold prices XAU= fell -0.33% to $1,844.18 an ounce.
The International Monetary Fund raised its forecast for
global economic growth in 2021, and said the
coronavirus-triggered downturn last year would be nearly one
percentage point less severe than expected. Global COVID-19 cases surpassed 100 million on Wednesday and
countries around the world are struggling with new variants of
the virus and delays in vaccine rollouts. Oil prices ticked up as a massive drawdown in U.S. crude
inventories countered persistent concerns about the coronavirus
pandemic continuing to hurt fuel demand.
U.S. crude oil stocks dropped by nearly 10 million barrels
last week to their lowest since March at 476.7 million barrels
as imports dropped off, the Energy Information Administration
said, compared with analysts' expectations in a Reuters poll for
a rise in inventories. EIA/S
Brent crude futures LCOc1 rose $0.34, to $56.25 a barrel.
U.S. crude futures CLc1 gained $0.57, to $53.18 a barrel.
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Emerging markets http://tmsnrt.rs/2ihRugV
Global asset performance http://tmsnrt.rs/2yaDPgn
Fed Balance Sheet https://tmsnrt.rs/3iOsevC
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