EU antitrust regulators clear Qualcomm purchase of NXP

BRUSSELS (Reuters) – EU antitrust regulators have approved U.S. smartphone chipmaker Qualcomm’s (QCOM.O) planned $38 billion acquisition of NXP Semiconductors (NXPI.O) subject to a series of commitments Qualcomm has made.

The European Commission, which oversees competition policy in the European Union, said in a statement on Thursday that it had identified a number of competition concerns that had led to an in-depth investigation, but was now satisfied with the deal.

“We use our smartphones for many different things and now also more and more as mobile wallets, to pay for public transport or make other secure payments,” said European Competition Commissioner Margrethe Vestager

“With this decision, we ensure that Qualcomm’s takeover of NXP will not prevent consumers from continuing to enjoy the benefits of these innovative technologies at competitive prices.”

Qualcomm, which supplies chips to Android smartphone makers and Apple (AAPL.O), is set to become the leading supplier to the fast growing automotive chip market following the deal, the largest-ever in the semiconductor industry

The EU’s concerns had included the interoperability of the merged group’s chips with rivals’ products and significant intellectual property related to NFC (near-field communication) technology.

Qualcomm has committed to offer licenses to NXP’s MIFARE technology and trademarks for an eight-year period on terms at least as advantageous as today. MIFARE is a technology used as a ticketing/fare collection platform.

Qualcomm will ensure that for eight years it will provide the same level of interoperability between its chip sets and corresponding products of other companies.

Qualcomm will also not acquire NXP’s standard essential NFC patents as well as some of NXP’s non-standard essential NFC patents. These would be transferred to a third party that would be bound to grant worldwide royalty-free licenses to them for three years.

Of NXP’s non-standard essential NFC patents that Qualcomm did acquire, it would not enforce its rights against other companies and grant royalty-free licenses to these patents.

“The Commission concluded that the proposed transaction, as modified by the commitments, would no longer raise competition concerns. The Commission’s decision is conditional upon full compliance with the commitments,” the Commission said in a statement.

Reporting by Philip Blenkinsop; editing by Robert-Jan Bartunek

Exclusive: Trump considers big ‘fine’ over China intellectual property theft

WASHINGTON (Reuters) – President Donald Trump said on Wednesday the United States was considering a big “fine” as part of a probe into China’s alleged theft of intellectual property, the clearest indication yet that his administration will take retaliatory trade action against China.

In an interview with Reuters, Trump and his economic adviser Gary Cohn said China had forced U.S. companies to transfer their intellectual property to China as a cost of doing business there.

The United States has started a trade investigation into the issue, and Cohn said the United States Trade Representative would be making recommendations about it soon.

“We have a very big intellectual property potential fine going, which is going to come out soon,” Trump said in the interview.

While Trump did not specify what he meant by a “fine” against China, the 1974 trade law that authorized an investigation into China’s alleged theft of U.S. intellectual property allows him to impose retaliatory tariffs on Chinese goods or other trade sanctions until China changes its policies.

Trump said the damages could be high, without elaborating on how the numbers were reached or how the costs would be imposed.

“We’re talking about big damages. We’re talking about numbers that you haven’t even thought about,” Trump said.

U.S. businesses say they lose hundreds of billions of dollars in technology and millions of jobs to Chinese firms which have stolen ideas and software or forced them to turn over intellectual property as part of the price of doing business in China.

The president said he wanted the United States to have a good relationship with China, but Beijing needed to treat the United States fairly.

Trump said he would be announcing some kind of action against China over trade and said he would discuss the issue during his State of the Union address to the U.S. Congress on Jan. 30.

Asked about the potential for a trade war depending on U.S. action over steel, aluminum and solar panels, Trump said he hoped a trade war would not ensue.

“I don’t think so, I hope not. But if there is, there is,” he said.

In Beijing, foreign ministry spokesman Lu Kang said there were no laws in China to force foreign investors to transfer technology, but acknowledged such things may happen as part of “market behavior” between companies working with each other.

“There is absolutely no government meddling in these actions,” Lu told a daily news briefing on Thursday.

“At the same time, I want to stress that China will resolutely protect its legitimate rights,” he added, without elaborating.

Jeffrey Schott, a senior fellow at the Peterson Institute for International Economics, said the penalties under Section 301 of the Trade Act of 1974, which authorized the investigation into China’s intellectual property practices, would probably include a package of both tariffs and restrictions on Chinese investment in the United States.

“I suspect the U.S. measures will involve restrictions in areas where we don’t have WTO (World Trade Organization) obligations,” Schott said. “Trump likes to talk about tariffs so that may be part of the package too. The Chinese would have the legal right to retaliate against tariff increases.”

Throughout his 2016 election campaign, Trump routinely threatened to impose a 45 percent across-the-board tariff on Chinese goods as a way to level the playing field for American workers. At the time, he was also accusing China of manipulating its currency to gain an export advantage, a claim that his administration has since dropped.

Trump said on Wednesday that China stopped meeting the criteria for currency manipulation after his election, and he said making that designation while trying to work with Beijing to rein in North Korea would be tricky.

“How do you say, ‘hey, by the way, help me with North Korea and I‘m going to call you a currency manipulator?’ It really doesn’t work,” Trump said.

The president also said he and Chinese President Xi Jinping had not discussed China’s plans with regard to purchases of U.S. Treasury bonds.

Bloomberg reported earlier this month that Chinese officials reviewing the country’s foreign exchange holdings had recommended slowing or halting purchases of U.S. Treasury bonds.

Trump said he was not concerned such a move would hurt the U.S. economy.

“We never talked about it. They have to do what they do,” he said.

Additional reporting by James Oliphant, Ayesha Rascoe, Lesley Wroughton, David Lawder, and Ben Blanchard in BEIJING; Editing by Alistair Bell

Morgan Stanley’s wealth management business helps bank top estimates

(Reuters) – Morgan Stanley’s (MS.N) quarterly profit dropped almost 60 percent on a provision related to the new U.S. tax law, but adjusted profit beat analyst expectations as strength in wealth management offset a drop in trading revenue.

Charges taken for the tax overhaul have crimped results for most big Wall Street banks. Morgan Stanley’s one-time $1.2 billion tax provision, however, was the smallest.

Most of Morgan Stanley’s tax hit came from deferred tax assets, which decline in value when corporate tax rates decline.

In an interview, Chief Financial Officer Jonathan Pruzan called the fourth-quarter results “strong,” despite ongoing issues with trading. “It was a really challenging environment this year, particularly for the macro business, given rates and volatility,” he said.

Shares of the sixth-largest U.S. bank rose nearly 2 percent to $56.40 in pre-market trade.

JPMorgan (JPM.N) took a 37 percent hit to quarterly profit due to a $2.4 billion charge related to the tax law, while Citigroup (C.N) flagged a $19 billion write-down, and posted a $18-billion quarterly loss on Tuesday.

Morgan Stanley earnings fell to $686 million or 29 cents per share in the fourth quarter ended Dec. 31, from $1.67 billion or 81 cents per share, last year.

Excluding the one-off charge and other items, adjusted profit was $1.68 billion, or 84 cents per share. Analysts on average were looking for 77 cents per share, according to Thomson Reuters I/B/E/S.

Revenue from investment banking, which included advising on MA and equity and fixed income underwriting, rose 12.4 percent to $1.55 billion, while wealth management rose 10.5 percent.

Trading revenue, which is traditionally Morgan Stanley’s biggest source of income, fell 19.5 percent to $2.25 billion.

Goldman Sachs’ (GS.N) earnings were also hurt by a big drop in fixed income, currency and commodity revenue as historically low market volatility rattled the struggling unit.

Banks like Citigroup, Bank of America (BAC.N) and Morgan Stanley have been increasingly turning to wealth management, and targeting the rich and ultra-rich, to offset market volatility affecting their bottomlines.

”We enter 2018 with strong momentum aided by rising interest rates, tax reform and an evolving regulatory framework,” Chief Executive Officer James Gorman said.

Return on equity for the full year was 9.4 percent, excluding the impact of the tax provision.

Gorman had set an ROE target of 9 percent to 11 percent last year.

Wealth management pre-tax margin of 26 percent exceeded his 23 percent to 25 percent target.

Total revenue rose to $9.50 billion from $9.02 billion. Analysts were looking for $9.20 billion.

(This story corrects CFO quotes in third and fourth paragraphs.)

Reporting By Aparajita Saxena in Bengaluru; Editing by Bernard Orr

Wall Street opens flat as energy stocks weigh

(Reuters) – Wall Street’s main indexes opened little changed on Thursday as energy stocks took a hit from lower oil prices.

The Dow Jones Industrial Average .DJI rose 13.58 points, or 0.05 percent, to 26,129.23. The SP 500 .SPX lost 1.76 points, or 0.0628 percent, to 2,800.8. The Nasdaq Composite .IXIC dropped 4.15 points, or 0.06 percent, to 7,294.13.

Reporting by Sruthi Shankar in Bengaluru; Editing by Anil D’Silva

U.S. housing starts fall; jobless claims hit 45-year low

WASHINGTON (Reuters) – U.S. homebuilding fell more than expected in December, recording its biggest drop in just over a year, amid a steep decline in the construction of single-family housing units following two months of hefty gains.

Other data on Thursday showed the number of Americans filing for unemployment benefits dropped to a 45-year low last week. The decline in claims for jobless benefits, however, probably exaggerated the health of the labor market as data for seven states, including California, were estimated.

Housing starts decreased 8.2 percent to a seasonally adjusted annual rate of 1.192 million units, the Commerce Department said. November’s sales pace was revised up to 1.299 million units from the previously reported 1.297 million units.

The percentage drop for housing starts in December was the largest since November 2016. Economists polled by Reuters had forecast housing starts decreasing to a pace of 1.275 million units last month.

U.S. financial markets were little moved by the data.

Homebuilding increased 2.4 percent to 1.202 million units in 2017, the highest level since 2007. December’s moderation in homebuilding is likely to be temporary amid strong demand for housing that is being driven by a robust labor market.

Builders, however, continue to struggle with labor and land shortages as well as more expensive lumber. A survey on Wednesday showed confidence among homebuilders slipping from an 18-year high in January. Builders expected a dip in buyer traffic and sales over the next six months.

Last month, single-family homebuilding, which accounts for the largest share of the housing market, tumbled 11.8 percent to a rate of 836,000 units as construction fell in the South, the Northeast and Midwest. Homebuilding was unchanged in the West.

Starts for the volatile multi-family housing segment rose 1.4 percent to a rate of 356,000 units.

While building permits edged down 0.1 percent to a rate of 1.302 million units in December, they outpaced starts. That suggests homebuilding will rebound in the coming months.

Building permits increased 4.7 percent to 1.263 million units in 2017, also the highest level since 2007.

Single-family home permits advanced 1.8 percent in December, while permits for the construction of multi-family homes fell 3.9 percent.

CLAIMS FALL SHARPLY

In a separate report on Thursday, the Labor Department said initial claims for state unemployment benefits dropped 41,000 to a seasonally adjusted 220,000 for the week ended Jan. 13, the lowest level since February 1973.

Economists had forecast claims falling to 250,000 in the latest week. Claims had increased over the previous four weeks, with economists blaming difficulties adjusting the data for seasonal fluctuations around moving holidays and unseasonably cold weather.

The Labor Department said claims for California, Arkansas, Kentucky, Maine, Hawaii, Virginia and Wyoming were estimated. Government offices were closed on Monday for the Martin Luther King holiday.

It also said claims-taking procedures continued to be disrupted in the Virgin Islands months after they were battered by Hurricanes Irma and Maria, while claims processing in Puerto Rico was still not back to normal.

Last week marked the 150th straight week that claims remained below the 300,000 threshold, which is associated with a strong labor market. That is the longest such stretch since 1970, when the labor market was much smaller.

The labor market is near full employment, with the jobless rate at a 17-year low of 4.1 percent.

Last week, the four-week moving average of initial claims, considered a better measure of labor market trends as it irons out week-to-week volatility, fell 6,250 to 244,500. The claims data covered the survey week for January’s nonfarm payrolls.

The four-week average of claims rose 8,500 between the December and January survey periods, suggesting some moderation in the pace of job growth. Nonfarm payrolls increased by 148,000 in December after surging by 252,000 in November.

Job growth is slowing as the labor market nears full employment. There has been an increase in companies reporting difficulties finding qualified workers. There are about 5.9 million job openings in the country.

In its Beige Book report of anecdotal information on business activity collected from contacts nationwide, the Federal Reserve said on Wednesday that “most districts cited on-going labor market tightness and challenges finding qualified workers across skills and sectors.”

Reporting by Lucia Mutikani; Editing by Paul Simao

Citigroup reports $18 billion loss on one-time tax items

(Reuters) – Citigroup Inc posted an $18-billion quarterly loss on Tuesday because of charges related to a new U.S. tax law, but its adjusted earnings beat Wall Street expectations and management signaled that the bank may soon lift financial performance targets.

The law, signed by President Donald Trump last month, has made fourth-quarter earnings a messy ordeal for big banks. It forces them to take one-time hits on earnings held abroad and changes the treatment of deferred tax assets, both of which affect Citigroup in particular.

However, banks and other large U.S. corporations expect to benefit greatly from lower taxes and other provisions in the new law over the long term.

Citigroup, the fourth-largest U.S. lender, stands to gain less than peers because it already earns about half of its profits in lower-tax countries abroad. Even so, it expects its tax rate to fall to about 25 percent this year from 30 percent in 2017. That could save the bank billions of dollars over the next few years.

The changes will not only boost Citigroup’s profits, but allow the bank to generate higher returns and generate more capital, Chief Executive Michael Corbat said. The new law might also stimulate economic growth because it incentivizes companies to invest in their businesses and has led to wage hikes that could help consumers, he said.

“Tax reform is a clear net positive for Citi and its shareholders,” Corbat said on a conference call with analysts.

Management is now examining financial performance targets set before the tax law changes to see whether they should be lifted, Chief Financial Officer John Gerspach said on a separate call with journalists.

Based on the tax savings alone, Citigroup expects to generate a return on tangible common equity of 10.5 percent this year, 12 percent next year and 13 percent in 2020, higher than previous forecasts. That metric is closely watched by Wall Street as a gauge of how much profit a bank can generate from shareholder money.

Executives also expect inflation to boost Citigroup’s net interest income as the U.S. Federal Reserve continues to lift rates this year. For every 25 basis points the Fed lifts rates, Citi should generate another $80 million of revenue, Gerspach said.

Citigroup shares rose 0.4 percent to $77.12 in morning trading.

Lagging competitors in growth and not earning its cost of capital, Citigroup’s valuation has not kept up with rivals like JPMorgan Chase and Bank of America Corp. Investors and analysts have been pushing Citi to prove it can grow revenue and profits as a second act to shrinking and returning capital.

The bank already plans to return at least $60 billion worth of capital to investors through stock buybacks and dividends, a target executives reiterated on Tuesday.

Excluding the tax issues, which led to $22 billion in charges, its fourth-quarter earnings were boosted by growth in consumer banking, especially in Asia and Mexico.

Its adjusted net income rose 4 percent to $3.7 billion, or $1.28 per share, compared with analysts’ average estimate of $1.19 per share, according to Thomson Reuters I/B/E/S.

Total revenue rose 1.4 percent to $17.26 billion and was slightly better than estimates of $17.22 billion.

Citigroup’s institutional business, which includes investment banking and trading, fell 1 percent due to weakness in trading that has also affected Wall Street peers.

Bond trading revenue fell 18 percent due to ongoing weakness in volatility, while equity markets revenue was down 23 percent because of $130 million worth of losses on a derivatives trade with one client.

The client is troubled South African furniture retailer Steinhoff International, a source familiar with the matter told Reuters. Other lenders, including JPMorgan Chase Co, also have exposure to Steinhoff, which has been embroiled in an accounting scandal.

In reports on Tuesday morning, several analysts said Citi’s results were modestly ahead of Wall Street’s best guess and that they were more focused on whether the bank would lift performance targets.

“Results could prove ‘good enough’ this quarter,” Instinet analyst Steven Chubak wrote in a note to clients.

Citi’s results follow JPMorgan and Wells Fargo last week. Bank of America Corp and Goldman Sachs Group Inc plan to report fourth-quarter results on Wednesday, with Morgan Stanley expected to report on Thursday.

Reporting by David Henry in New York and Sweta Singh in Bengaluru; Writing by Lauren Tara LaCapra; Editing by Bernard Orr and Nick Zieminski

GE reignites break-up talk after $11 billion insurance, tax hit

NEW YORK (Reuters) – General Electric Co (GE.N) indicated it is looking closely at breaking itself up on Tuesday as the conglomerate announced more than $11 billion in charges from its long-term care insurance portfolio and new U.S. tax laws.

Chief Executive John Flannery has previously raised the idea of selling pieces of the largest U.S. industrial company, but went slightly further on Tuesday, saying GE is “looking aggressively” at a spin-off or other ways to maximize the value of GE’s power, aviation and healthcare units.

“I would categorize it as an examination of options and it’s (the) kind of thing that could result in many, many different permutations, including separately traded assets really in any one of our units, if that’s what made sense,” he said in response to an analyst question on a conference call, without giving any details.

Flannery already is eliminating thousands of jobs and cutting $3.5 billion in costs as he tries to solve problems he inherited when he became CEO on Aug. 1, including falling sales of power turbines, a build-up of inventory and declining profit margins in some businesses. His turnaround effort is still likely to take a year or more to play out.

Some Wall Street analysts saw Tuesday’s remarks as a sign that GE may already have figured out valuation, timing or disclosure requirements for a spin-off.

“He got really explicit,” Deane Dray, analyst at RBC Capital Markets, said of Flannery’s remarks. “He named all the units and said we’ll look at structures that allow for a public company exit. If you’re looking for the break-up scenario, it’s still simmering on a front burner.”

Others saw more hurdles. While ”a full-scale GE breakup may be in the cards,” it would have tax, corporate and research cost implications, said Jeff Sprague, an analyst at Vertical Research Partners.

“We think these comments point more towards the eventual split-off of (GE’s Baker Hughes unit) and actions such as a potential IPO of part of GECAS,” GE’s aircraft finance unit, Sprague said in a research note.

GE said it will provide another update on its review in the spring. A decision could come then, CNBC reported, citing sources close to GE, adding that a breakup was “likely.”

GE’s fourth-quarter $11 billion charge includes $6.2 billion after tax for reevaluation of insurance assets, $3.4 billion for U.S. tax changes and $1.8 billion for impairments of energy financing at GE Capital. The insurance charge was double what GE warned last year.

The charges means GE’s 2017 profit, to be reported next week, will be at the bottom end of its forecast of $1.05 to $1.10 a share, GE said.

GE shares ended down 2.9 percent at $18.21. At that level, the company has a market value of about $156 billion.

INSURANCE RETHINK

The insurance charge is the latest sign of problems with the modeling and funding of nursing home and other long-term care in the United States.

GE said a review with outside actuaries and accountants that ended late last week showed its portfolio of 300,000 policies needed $15 billion more in reserves to cover potential payouts, or about $50,000 per policy.

GE Capital will set aside $3 billion in cash in the current quarter and $2 billion in annual increments through 2024 to cover those potential costs.

GE said the Kansas Insurance Department – the primary regulator for North American Life Health, GE Capital’s insurance portfolio – had approved the reserve payments plan.

The $15 billion set-aside highlights difficulties long-term care insurers and reinsurers face as they struggle to make good on policies dating back decades that underestimated projected healthcare costs and life spans.

GE’s policies stem from businesses it mostly acquired in the 1990s and sold last decade. GE said it has not written such policies since 2006.

The cost of nursing home or home-based elderly care tends not to be covered by Medicare, the U.S. government insurance program, and can be extremely expensive out of pocket.

Flannery said in November that GE would pare its operations to power, healthcare and aviation, and exit at least $20 billion in operations as it tries to shore up its financial performance. He also said further major portfolio changes were being considered, but was vague.

GE was the worst performer in the Dow Jones Industrial Average in 2017 and it has already cut its planned annual dividend for 2018 in half, only the third cut in the company’s 126-year history.

Even after the stock’s declines, it trades at only a slight discount to industrial peers, trading at about 18 times this year’s expected earnings.

Additional reporting by Ankit Ajmera in Bengaluru; Editing by Saumyadeb Chakrabarty and Nick Zieminski

Health-conscious Nestle sells U.S. candy to Ferrero for $2.8 billion

LONDON/MILAN (Reuters) – Swiss food group Nestle (NESN.S) has agreed to sell its U.S. confectionery business to Italy’s Ferrero for $2.8 billion, it said on Tuesday, marking CEO Mark Schneider’s first big sale and a small step on its path towards healthier products.

Nestle, the world’s biggest packaged-food company, has cited the unit’s weak position in the United States, where it trails Hershey (HSY.N), Mars Inc and Lindt, as the rationale for a sale.

For family-owned Ferrero, the cash deal offers a chance for the Italian company to build scale quickly in that key market, where it has done two other deals in the past year.

The maker of Nutella spread and Ferrero Rocher pralines will become the third-largest chocolate company in the U.S. and globally, according to Euromonitor International.

For Nestle, which first sold milk chocolate in the 1880s, a consumer shift away from junk and sugary foods has led the Swiss company to focus on “nutrition, health and wellness”, although it says it is committed to its non-U.S. confectionery business.

However, bankers and analysts have speculated that it could dispose of other weak brands, or even step away from candy altogether by forming a joint venture as it recently did in ice cream. Hershey, which owns Nestle’s KitKat brand in the United States, would be the obvious partner, one banker said.

Tuesday’s deal only accounts for about 1 percent of Nestle’s sales, but is part of a larger shake-up by chief executive Schneider, a healthcare industry veteran one year into the job.

Schneider has been tasked with accelerating Nestle’s growth strategy in an increasingly tough environment for multinational food companies due to slowing growth and greater competition from niche, upstart brands.

Nestle’s mass-market chocolate bars, such as BabyRuth, Butterfinger and Crunch, have underperformed rivals for years as consumers have turned towards healthier snacks such as fruit bars and premium chocolate brands such as Lindt (LISN.S).

Nestle said last week it was selling Australian chocolate bar Violet Crumble. The company is expanding into consumer health, bidding for the vitamin and supplements business being sold by Germany’s Merck (MRCG.DE) after agreeing last month to buy vitamin maker Atrium Innovations.

”The switch of assets makes a lot of sense,“ Vontobel analyst Jean-Philippe Bertschy said of the moves out of U.S. chocolate and into vitamins. ”You’re going out of a weak business in terms of financials and … entering a market with strong growth and higher margins.

Nestle paid $2.3 billion for Atrium, which has about $700 million in annual sales. The chocolate business, which it is selling for $2.8 billion, has about $900 million in sales.

Liberum analyst Robert Waldschmidt estimates the deal represents a multiple of roughly 20.7 times earnings before interest, tax, depreciation and amortization, which he said “feels like quite a top multiple”.

Waldschmidt pointed to the recent sale of Reckitt Benckiser’s (RB.L) food business, which is higher margin, at 20.3 times EBITDA.

Third Point, the U.S.-based hedge fund that has pushed Nestle to boost returns, was not immediately available to comment.

CHOCOLATE WOES

The United States accounts for nearly 19 percent of a global chocolate market worth $102.3 billion at retail, according to Euromonitor. The value of the market has been buoyed by people increasingly choosing more expensive treats, but volume has been weighed down by the popularity of other alternatives.

Nestle has lost market share in recent years, as start-up brands like Kind have grown quickly.

Even Lindt, whose Lindor chocolate balls command premium prices, has felt the pain, reporting on Tuesday that 2017 organic sales rose only 3.7 percent, below its long-term target of 6 to 8 percent. Sales in North America fell 1.6 percent.

Ferrero was advised by Credit Suisse and Lazard while Davis Polk and Wardwell acted as its legal adviser.

Additional reporting by Silke Koltrowitz and John Miller in Zurich and Svea Herbst-Bayliss in Boston; Reporting by Martinne Geller in London; Editing by David Goodman and Alexander Smith

Bitcoin falls 25 percent to $10,200 on Bitstamp exchange

SYDNEY (Reuters) – Bitcoin had lost a quarter of its value in early Asian trading on Wednesday as fears grew of a regulatory crackdown after reports that South Korea’s finance minister said banning trading in cryptocurrencies was still an option.

Bitcoin was last down 25 percent at $10,182.00 on the Luxembourg-based Bitstamp exchange.

Reporting by Wayne Cole; Editing by Sandra Maler

Asian shares dip as commodities ease, bitcoin licks wounds

TOKYO (Reuters) – Asian stocks stepped back from a record high on Wednesday as the region’s resource shares were dented by falling oil and commodity prices while digital currencies tumbled on worries about tighter regulations.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS dropped 0.1 percent from its record high as resource shares declined after oil and other commodities succumbed to profit-taking after recent gains.

Japan’s Nikkei .N225 fell 0.7 percent from its 26-year peak hit the previous day.

Wall Street paused its rally, led by a 1.2 percent fall in energy stocks .SPNY as well as weakness in General Electric (GE.N). The U.S. conglomerate raised the prospect of breaking itself up and announced more than $11 billion in charges from its long-term care insurance portfolio and new U.S. tax laws.

Cboe volatility index .VIX, which measures investors’ expectation on price swings in U.S. shares, rose to a one-month closing high of 11.66 from near record low levels seen earlier this month.

World shares have rallied since the start of this year on prospects of strong global growth and improving earnings in the U.S. and elsewhere.

Indeed, MSCI’s broadest gauge of the world’s stock markets .MIWD00000PUS rose 0.3 percent to another record high on Tuesday, extending its gain so far this month to 4.2 percent.

“U.S. corporate earnings are beating estimates more than usual. People have been talking about ‘goldilocks economy’,” said Soichiro Monji, chief strategist at Daiwa SB Investments, adding market fundamentals remain solid. “Now they are starting to think a ‘red-hot’ economy may be a better description.”

In the currency market the dollar was broadly weak, sticking near a three year low against a basket of currencies.

“As more countries in the world are starting to unwind their stimulus, the dollar’s yield advantage will shrink and prompt a correction in the dollar’s strength since 2014,” said Minori Uchida, chief FX analyst at Bank of Tokyo Mitsubishi-UFJ.

Three sources close to the European Central Bank’s policy told Reuters that the ECB is unlikely to ditch a pledge to keep buying bonds at next week’s meeting as rate setters need more time to assess the outlook for the economy and the euro.

Although the report briefly pushed down the euro, the currency stayed near a three-year high as investors expect the ECB’s eventual exit from stimulus as a major market theme for this year.

The euro EUR= last traded at $1.2261, near Monday’s high of $1.22965, which was its highest since December 2014.

The ECB last week signaled a growing appetite for revising its policy message in “early” 2018, and specifically a promise to continue its 2.55 trillion euro money-printing program until inflation heads back to target

The dollar fetched 110.46 yen JPY=, having fallen for the sixth straight session to a four-month low of 110.245 yen on Tuesday.

Gold traded at $1,340.6 per ounce XAU=, near Monday’s four-month peak of $1,344.7.

On the other hand, digital currencies tumbled, with bitcoin falling to a six-week low of $10,162 BTC=BTSP after reports said South Korea and China could ban trading, which intensified fears of a wider regulatory crackdown.

Bitcoin stood at $11,362, after a fall of 16.3 percent on Tuesday, its biggest daily decline in four months.

Oil prices pulled back from three-year highs as traders booked profits but healthy demand underpinned prices near $70 per barrel, a level not seen since the market slump in 2014.

Prices have been driven up by oil production curbs in OPEC nations and Russia, and demand amid healthy economic growth

U.S. crude futures CLc1 traded at $63.88 per barrel after hitting a December 2014 peak of $64.89 on Tuesday.

Editing by Sam Holmes