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Traders look at computer screens on the trading floor of Bankinter bank during a Spanish bond auction in Madrid September 20, 2012. Spain's 10-year borrowing costs fell to just below 5.7 percent - their lowest level since January - in an auction on Thursday.But relief from market pressure may be short lived as Prime Minister Mariano Rajoy hesitates over whether to request an international bailout.


If investors really feel that central bank efforts to stimulate the economy are going to succeed in putting the global economic recovery back on track, they have a strange way of showing it. Global stocks sank in early trading on Thursday, with the S&P 500 in particular down more than 9 points or 0.6 per cent, to 1,452.

Okay, that's not a sign of carnage. But at that level, the U.S. benchmark index is on track for its lowest close in slightly more than one week. Or, to put it another way, it is on track to close at its lowest level since the U.S. Federal Reserve unveiled a bold round of stimulus last Thursday – the one that surprised many market watchers for its open-ended commitment to buy mortgage debt each month until the unemployment rate falls to an acceptable level.

The move last week sent the S&P 500 to about 1,460, or 8 points above its current level.

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For many economists and strategists, this could be a told-you-so moment. Some had warned that another round of Fed bond-buying – or quantitative easing – was unlikely to have a profound impact on the economy. Indeed, Fed chairman Ben Bernanke himself warned that central bank policy is not an economic panacea.

Others pointed out that that the impact on the stock market could be limited. Prior to previous rounds of Fed stimulus, the S&P 500 had corrected substantially before Mr. Bernanke stepped in with a plan to provide an economic jolt – and the index responded with a sustained rally. But with each round of stimulus, the impact on the S&P 500 has grown tamer, leading to the conclusion that there are diminishing returns at work here. And prior to this latest round of stimulus, the index was not exactly on the ropes, suggesting that the subsequent rally would be less dramatic.

Still, you have to wonder if markets are being impatient here. While weekly U.S. initial jobless claims are elevated, manufacturing activity in China continues to contract and private-sector business activity in the euro zone contracted in September for the eighth straight month, these disappointing reports merely confirm that central banks are probably doing the right thing in providing economic stimulus right now. If stimulus works at all, it could take some time.

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