Volatile quarter takes shares down, gold plunges

World equity markets rose for a fourth day on Friday, but a gauge of world stocks and other assets still ended in the red for the month of June and for the second quarter as fears that U.S. monetary stimulus could soon be pared back drove volatility and weighed on sentiment. Spot gold prices recorded their biggest quarterly decline in at least 45 years, even as prices on Friday marked the biggest daily percentage gain in a year.

The broad S&P 500 index fell for the day, but upbeat economic data from Japan and efforts by China's central bank to ease credit concerns gave other equity markets support. MSCI's world equity index rose 0.15 percent Friday to gain more than 1.3 percent for the week, though for the quarter it was down 0.01 percent.

Markets were volatile as the second quarter drew to a close, and investors pondered the likely impact of an end to the era of easy money from the Federal Reserve and other central banks that has been driven rallies in various markets. "The market is continuing to adjust as we try to figure out what's going on with respect to Fed policy, and we should continue to see volatility as things get sorted out," said Rex Macey, who helps oversee $20 billion in assets as chief investment officer at Wilmington Trust in Atlanta.

"We're cooling off a little bit after a few days of strong action." At the close of trading on Friday on Wall Street, the Dow Jones industrial average fell 114.89 points or 0.76 percent, to 14,909.6, the S&P 500 lost 6.92 points or 0.43 percent, to 1,606.28 and the Nasdaq Composite added 1.38 points or 0.04 percent, to 3,403.25. Unlike other markets, however, Wall Street's three major indexes finished the quarter higher, with the Dow up 2.27 percent, the S&P 500 up 2.36 percent and the Nasdaq up 4.15 percent.

Global stock, bond and commodity markets have been highly volatile since Federal Reserve Chairman Ben Bernanke signaled last week that the U.S. central bank would soon cut the pace of its stimulative bond buying unless the economic recovery slows. Markets had taken heart on Thursday after two Fed officials seemed to back away from Bernanke's comments, but two other policymakers of the U.S. central bank who spoke on Friday - Governor Jeremy Stein and Richmond Fed President Jeffrey Lacker - showed a more aggressive tone on when the central bank's unprecedented policy accommodation might be reduced. Talk of the Fed tapering its bond buying has hit Treasury prices hard. The slump in prices started in May, gaining momentum with Bernanke's words last week. With quarter-end adding to volatility, exposure to U.S.

Treasuries through the iShares Barclays 20-year-plus exchange-traded fund fell 8.9 percent in the last three months, its worst performance over the last 10 quarters. The recent choppiness could linger in markets in the coming days, said Justin Lederer, strategist at Cantor Fitzgerald in New York, especially going into the release next Friday of the government's closely watched monthly U.S. payrolls report. "That could definitely set the tone for a date for QE" to start winding down, he said.

The benchmark U.S. 10-year Treasury note fell 4/32 in price to yield 2.4894 percent, compared with 2.476 percent late on Thursday. A Reuters survey of 53 investors across the United States, Europe and Japan released on Friday found that funds had already cut their average equity holdings in June to a nine-month low due to the recent volatility and held more cash. Gold, which had soared in value as a hedge against higher inflation from the cheap central bank money being printed, has slumped. Despite posting on Friday its largest daily percentage gain in a year, spot gold prices fell about 23 percent for the quarter, the largest quarterly percentage drop on records going back to 1968. Gold was recently trading at $1,233 an ounce, its lowest level since August 2010.

WINDOW DRESSING
End-of-quarter maneuvering was cited for volatility in the euro on Friday. The euro zone common currency was off 0.2 percent to $1.3014. Against the yen, the dollar was up 0.8 percent at 99.16 yen. The broad FTSEurofirst 300 index closed down 0.45 percent to end June 5.3 percent lower after a record 12 monthly rises.

Earlier, MSCI's broadest index of Asia-Pacific shares outside Japan climbed 1.4 percent, pulling further away from an 11-month low and wiping out this week's losses. It was still down around 7 percent for the year. China's stock markets had also seen their biggest gains in two months after the country's central bank, which had let short-term borrowing costs spike to record highs, said it would ensure its policy supported a slowing economy. Brent crude oil futures fell 0.7 percent but were up 1.7 percent for the month, the first positive month in five. Copper edged up but its more than 10 percent decline for the quarter was the worst performance in almost two years.