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Stocks falter as tech rally fades

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Traders cautious after weak US data

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Dollar rises to three-month high

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Divergent views at Fed cloud outlook for December rate cut

(Updates latest price moves, adds news of Wall Street banks

warning on sell-off, fund manager comments)

By Lucy Raitano and Kevin Buckland

LONDON/TOKYO, Nov 4 (Reuters) - European stock markets

slipped on Tuesday as a recent tech-fuelled rally faded and top

Wall Street banks warned of a stock market selloff, while the

dollar rose to a three-month high.

The pan-European STOXX 600 was last down 0.9%,

having earlier slipped as much as 1.6%. Earlier, Asian shares

tumbled from all-time highs as investors booked profits

following strong tech-led gains over recent weeks.

U.S. futures last pointed sharply lower on Tuesday, with S&P

futures down 1% and Nasdaq futures off 1.3%.

The chief executives of Goldman Sachs ( GS ) and Morgan

Stanley ( MS ) warned at an investment summit in Hong Kong of

the prospect of a stock market correction of more than 10% over

the next two years.

SIGNS OF AI CAUTION

Michael Brown, senior research strategist at Pepperstone,

said some market participants regarded a slide in Palantir ( PLTR )

shares post-earnings as indicative of a greater degree

of scepticism about the AI theme.

"I'm not entirely sure I buy into that, but that's the story

that's going around," said Brown.

He also pointed to technical factors on the S&P 500 that

could have exacerbated selling pressures.

"Ultimately I think this is a pause in the broader rally,

rather than the tide sort of definitively turning against the

bulls," he said.

Palantir Technologies ( PLTR ) fell almost 6% in early

Frankfurt trading on Tuesday after earnings released on Monday.

Palantir ( PLTR ) stock trades at an eye-watering 12-month-forward

price-to-earnings ratio of 246.2, compared with Wall Street

darling Nvidia's 33.3, according to LSEG data.

The catalyst for the latest leg up in stocks was Amazon's

$38 billion cloud services deal with ChatGPT creator OpenAI.

"People are turning cautious about these circular

transactions around AI, with Nvidia at the centre of

everything," said Tony Sycamore, an analyst at IG.

"It's concern about all the capex that's been spent, without

knowing where the revenue is going to come from."

On a tech earnings discussion and Q&A call on Tuesday,

Kristofer Barrett, fund manager and head of global equities at

Carmignac, said he remained confident on AI, flagging increasing

big tech capex guidance.

But he also flagged "excess hyping" of recent deals as a

worry.

"..From a market perspective it's pretty bad, because

we're basically pulling forward newsflow, we're talking about

things we're going to do three years from now, if we're already

discounting that... that obviously takes away potential from

future returns," he said

"It also starts discussion around, 'Is this a bubble?'"

Barrett highlighted a recent run higher of unprofitable

tech stocks, noting that some parts of the market - not

necessarily AI-related but in other tech sectors like space and

quantum - are reaching high market caps despite not being

profitable and in some cases not even having products out.

UK, U.S. ECONOMIES IN FOCUS

Britain was in focus after a speech on Tuesday by its

finance minister Rachel Reeves that appeared to pave the way for

broad tax rises, weighing on UK gilts.

Broader sentiment was also dampened by weakness in U.S.

economic data, while a divergence in views among Federal Reserve

officials clouded the outlook for a December interest rate cut.

The U.S. dollar rose to a nearly nine-month peak versus the

yen, as well as a three-month high against the euro.

The U.S. dollar was supported by reduced bets for near-term

Fed easing, edging up to 154.8 yen for the first time

since February 13, and to $1.149 per euro for the first

time since August 1.

However, those advances evaporated as traders bought the yen

and euro for their haven appeal as stock markets slid.

The polarised views on policy among Fed officials have also

become a source of worry for the market, particularly with

official economic data still suspended due to the federal

government shutdown, leaving investors groping in the dark for

clues on U.S. economic health.

Accounts from manufacturers in the private Institute for

Supply Management survey on Monday painted a dire picture of the

factory sector, showing U.S. manufacturing contracted for an

eighth straight month in October as new orders remained subdued.

Fed Governor Stephen Miran on Monday restated the case for

deep rate cuts, while Chicago Fed President Austan Goolsbee said

he was leery of further reductions while inflation remained

significantly above the central bank's 2% target.

The Fed lowered rates last week but Chair Jerome Powell

suggested that might have been the last cut of the year.

Traders are now pricing in a 67.3% chance of a rate cut in

December, compared with 90.5% a week earlier, CME FedWatch

showed.

Gold failed to benefit from haven flows, as it

continued to find its footing following a sharp retreat from a

record high in mid-September. Bullion was last down 0.4% at

around $3,987 per ounce.

Crude oil prices slipped as markets read OPEC+'s decision to

pause output hikes in the first quarter as a signal of

oversupply in the market.

Brent crude futures edged down 1.3% to $64.08 a

barrel.