Banks weigh on world markets after China warning

[November 24, 2009]  LONDON (AP) -- World stock markets fell Tuesday following big gains on Monday, with China's main index posting its biggest drop in three months after the country's central bank warned commercial banks to control their lending.

European shares tracked their Asian counterparts lower, with the FTSE 100 index of leading British shares down 15.92 points, or 0.3 percent, at 5,339.58 and Germany's DAX 32.73 points, or 0.6 percent, lower at 5,768.75. The CAC-40 in France was 25.52 points, or 0.7 percent, lower at 3,787.65.

On Monday, Europe's main indexes closed over 2 percent higher amid further hopeful signs about the global economic recovery, particularly out of the U.S.

Wall Street is also poised to open lower after Monday's gains of over 1 percent. Dow futures were down 18 points, or 0.2 percent, at 10,404 while the broader Standard & Poor's 500 futures fell 1.5 points, or 0.1 percent, to 1,102.30.

"After a bumper start to the week, there's perhaps no surprise to see a degree of profit taking in the short term although there still seems to be upward momentum in the market, confounding the pessimists at least for the time being," said Ben Potter, research analyst at IG Markets.

Financial stocks led the retreat in Europe after big gains on Monday, with Commerzbank AG down 2.5 percent, making it the biggest faller on the DAX. Deutsche Bank AG was also down just under 2 percent. Meanwhile, Switzerland's UBS AG was down 2 percent.

Sentiment towards the banks in Asia was dented by the warning from China's central bank that commercial banks need to control their lending. As a result, China's Shanghai index tumbled 115.14 points, or 3.5 percent, to 3,223.53 -- its biggest retreat in three months -- as investors fretted over the warning. The index had been up 11.4 percent so far this month.

The warning comes ahead of the government's annual economic planning meeting and could foreshadow more measures to reduce liquidity in the months ahead.

In Britain, Lloyds Banking Group PLC shares rose even though it confirmed it is planning to raise a British record of 13.5 billion pounds ($22.3 billion) via a rights issue in order to shore up its capital position and not take part in the government's Asset Protection Scheme.

The rights issue has been priced at 37 pence, which is a 60 percent discount to Monday's closing share price.

Even so, Lloyds shares were up 1.4 percent at just below 93 pence a share.

The retreat in Europe was cushioned somewhat by further encouraging economic data, which cemented market expectations that growth is picking during the fourth quarter.

Germany's Ifo Institute said business confidence rose for an eighth consecutive month in November to its highest level since August 2008, while the EU's statistics office Eurostat reported that industrial orders in the 16 countries that use the euro rose by 1.5 percent in October, double market expectations.

Attention later will focus on the second estimate of U.S. economic growth in the third quarter -- analysts are expecting a downward revision from the preliminary estimate of annualized growth of 3.5 percent after softer than anticipated trade and retail sales data.

Elsewhere in Asia, Hong Kong's Hang Seng index slid 348.25, or 1.5 percent, to 22,423.14 on weakness in Chinese financial stocks. Bank of China slumped 4 percent.

Japan's Nikkei 225 stock average dropped 96.10, or 1 percent, to a fresh four-month low of 9,401.58.

South Korea's Kospi dropped 0.8 percent to 1,606.42 and Australia's S&P/ASX 200 index declined 0.7 percent to 4,685 on losses in banks and miners. Markets in Singapore and Thailand also fell.

Oil slipped to near $77 a barrel amid mixed signs about crude demand. Benchmark crude for January delivery was down 40 cents to $77.16 a barrel. The contract rose 9 cents to settle at $77.56 on Monday.

In currencies, the dollar fell 0.3 percent to 88.68 yen while the euro dropped 0.2 percent to $1.4941.

[Associated Press; By PAN PYLAS]

AP Business Writer Stephen Wright in Bangkok contributed to this report.

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