World stocks shaken by US-China trade dispute

[September 14, 2009]  LONDON (AP) -- European and Asian markets fell Monday, shaken by news of a trade dispute between the U.S. and China over tariffs on tires.

Germany's DAX fell 1.4 percent to 5,544.71 and Britain's FTSE 100 lost 1.0 percent at 4,962.90. France's CAC-40 shed 1.4 percent to 3,683.72.

Asian indexes lost as much as 2 percent and Wall Street was expected to fall later. Dow industrials futures were down 81 points at 9,450.00 and Standard & Poor's 500 futures slipped 9.90 points to 1,027.40.

The U.S. decision to impose trade penalties on Chinese tires infuriated Beijing, which condemned the move as protectionist and said it violated global trade rules.

Crucially, the dispute suggests international economic cooperation is weak ahead of the G-20 summit of rich and developing nations later this month in Pittsburgh. With U.S.-Chinese trade a key link in the global economy, investors were spooked by the potential repercussions.

Chen Deming, China's minister of commerce, said the penalties would hurt relations with the U.S. A ministry statement said President Barack Obama had given in to "U.S. domestic trade protectionism."

"Part of the reversal in the dollar and equity markets may simply reflect profit taking, but early signs of a new trade conflict between the US and China are not buoying spirits regarding the global outlook," said Daragh Maher, analyst at Calyon.

Also hurting sentiment outside the U.S. was the dollar's recent drop against world currencies like the yen, the pound and the euro -- against which it hit a yearly low last week. That has hurt confidence in companies in export-heavy European and Asian economies.

A slump in commodity prices weighed on mining stocks, with Anglo American down 2.9 percent and BHP Billiton down 3.0 percent, while a drop in euro zone industrial production data reminded markets that manufacturers are not yet out of the woods.

Industrial output in the euro area fell 0.3 percent in July compared to June, which "shows that while the wider economy has probably returned to positive growth in the third quarter, the recovery will not be particularly strong," said Ben May, economist at Capital Economics.

In Asia, Japan's Nikkei 225 index took the day's biggest hit, falling 242.27 points, or 2.3 percent, to 10,202.06. Toyota, the world's largest car company, lost 2.6 percent, electronics giant Canon was off 3.4 percent and Sony dropped 2.4 percent.

Hong Kong's Hang Seng closed down 1.1 percent at 20,932.20 while Korea's Kospi shed 1 percent to 1,634.91. Australia's key index lost 1.4 percent, India's Sensex was down 0.5 percent and Taiwan's benchmark fell 1.1 percent.

Shanghai's market defied the downswing, adding 1.2 percent to 3,026.74.

Looking ahead, investors will be eyeing Obama's speech Monday about plans to wind down government measures that bailed out financial firms last year and to overhaul the country's tattered regulatory regime. He will ask the financial industry to support his overhaul, as well as take responsibility for its failings and learn to police itself. Banks and other financial services companies are expected to pay their employees huge bonuses just a year after being rescued with public money.

In New York Friday, the Dow Jones industrial average fell 0.2 percent to 9,605.41 as investors pulled out of the market following a five-day rally which left the market at its highest levels in nearly a year.

The broader Standard & Poor's 500 index 0.1 percent to 1,042.73 and the Nasdaq composite index fell 0.2 percent to 2,080.90.

Oil prices dropped in Europe, with benchmark crude for October delivery down 83 cents to $68.46 a barrel. On Friday, the contract tumbled $2.65 to settle at $69.29.

The dollar, which has tanked in recent days, rebounded modestly to 90.77 yen compared to 90.42 yen. The euro fell to $1.4540 from $1.4597.

[Associated Press; By CARLO PIOVANO]

Associated Press writer Jeremiah Marquez in Hong Kong contributed to this report.

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