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December 14, 2010 > Chinese move to cool economy weighs on markets

Chinese move to cool economy weighs on markets

By Carlo Piovano, Associated Press

LONDON (AP), Dec 10 - World stock markets were mixed Friday as investors worried that China's decision to tighten bank lending and a possible interest rate hike in coming days will weigh on global growth.

Asian indexes closed down and gains in Europe were limited after the announcement that the People's Bank of China raised its required reserve ratio - the amount of capital banks need to keep with the central bank - by half a percentage point.

Markets had been bracing for an interest rate hike, which could have a more direct impact on the economy, but analysts say that may yet be delivered soon.

Asian indexes closed mostly lower, while European markets - where commodities stocks opened higher after strong Chinese import figures - were dampened. Britain's FTSE 100 was down less than 0.1 percent at 5,807.15 and Germany's DAX was up 0.5 percent at 7,000.57. France's CAC-40 was flat at 3,858.07.

Wall Street edged up on the open. After earlier expectations for a stronger rise, the Dow industrials average was 0.1 percent higher at 11,384 and the Standard & Poor's 500 was up 0.2 percent to 1,235.

The Chinese move on Friday was the third reserve increase in five weeks and came as Beijing tries to restore normal conditions following a flood of stimulus spending and bank lending that helped China rebound from the global crisis.

Analysts said the move nevertheless fell short of market expectations, which were for an increase in the key interest rate.

``A rate hike still cannot be ruled out this weekend,'' said analysts at Capital Economics.

Economic growth in China is expected to remain robust, around 9 percent over the next couple years, even with rate hikes.

The Shanghai Composite index, which closed before the announced tightening in lending, ended 1.1 percent higher at 2,841.04 in anticipation of a national economic planning meeting during the weekend.

In Europe, the focus was on the debt crisis, which eased from last week's panic but remained a lingering threat. German and French leaders vowed to protect the euro from the market turmoil that threatens to raise indebted countries' borrowing costs to unsustainable levels.

However, they both confirmed that they are against increasing the size of the current $1 trillion bailout fund or creating European bonds that would unify debt markets across the region. They rather hope that the European Central Bank's purchases of eurozone government bonds and individual nations' austerity measures will be enough to regain market confidence.

The effects of the debt crisis continue, however. Moody's warned on Friday that it is considering a downgrade of Portuguese banks' credit ratings. On Thursday, Fitch ratings agency dropped Ireland's credit-risk score three notches to BBB-plus, citing the country's massive bailout as an admission that its debt crisis was worse than advertised.

Looking ahead, traders waited to see whether a tax compromise brokered by the White House and Republicans will pass the Democratic-controlled House.

That also helped make investors cautious in Asia, where Japan's Nikkei 225 stock average closed down 0.7 percent to 10,211.95. South Korea's Kospi slipped 0.1 percent to 1,986.14 after jumping 1.7 percent the previous day.

Hong Kong's Hang Seng index dropped less than 0.1 percent to 23,162.91 and benchmarks in Singapore, Taiwan and Indonesia also fell. Australia's S&P/ASX 200 fluctuated in and out of negative territory before closing up 0.1 percent at 4,745.90. India's benchmark also rose.

In currencies, the dollar was up at 83.88 yen from 83.71 yen Thursday night in New York. The euro was down at $1.3216 from $1.3233.

Benchmark oil for January delivery was down 2 cents at $88.35 a barrel in electronic trading on the New York Mercantile Exchange. The contract added 9 cents to settle at $88.37 on Thursday.


Alex Kennedy in Singapore contributed to this report.

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