Markets slip on worries about QE2

World stock markets fell Wednesday amid speculation that the U.S. Federal Reserve's stimulus measures will be more modest and gradual than expected.

Traders have bet that the U.S. central bank will reinstate in November a program known as quantitative easing, or QE2 to buy American government debt.

Buying bonds would drive interest rates and bond market yields even lower, decreasing the costs of borrowing for consumers and for businesses to invest and hire.

The Wall Street Journal reported Wednesday, without citing sources, that the Fed will likely take a more gradual and flexible approach to economic stimulus by announcing a new program to buy several hundred million dollars worth of U.S. Treasury bonds over the next few months.

That's in contrast to the nearly $2 trillion the Fed spent the first time, during the financial crisis. It also suggests traders' hopes that the size of the bond purchase will be around $500 billion may be excessive.

The Canadian dollar fell as the American currency rose on growing doubts about the size of the stimulus.

The loonie closed down 0.43 of a centat 97.21cents US.

The Toronto stock market endedlower, with the S&P/TSX composite index down by 117.43 points, or 0.93 per cent, to 12,567.25.

In New York, the Dow fell 43.89 points, or 0.39 per cent, to 11,126.28; the Nasdaq rose5.97 points, or 0.1 per cent, to 2,503.26; and the broader S&P futures fell 3.19 points, or0.27 per cent, to 1,182.45.

Britain's FTSE 100 slid 1.1 per cent to close at 5,646.02, France's CAC-40 fell one per cent to end at 3,815.77 and Germany's DAX dipped 0.7 per cent to finish at 6,568.00.

In Asia, Japan's benchmark Nikkei 225 stock index trimmed gains to close up just 9.65 points, or 0.1 per cent, at 9,387.03.