World stocks worried by China policy, weak EU data

[February 12, 2010]  LONDON (AP) -- World markets lost earlier gains on Friday as investors worried about China's decision to tighten its monetary policy to cool off growth and eurozone growth figures came in well below expectations.

Some indexes were higher, buoyed by hopes that the EU will provide support to its most heavily indebted member states, but by late morning in European trading that optimism was subdued, pushing the euro to a nine-month low.

Britain's FTSE 100 benchmark index was down 0.5 percent at 5,135.57 while Germany's DAX was up 0.2 percent to 5,515.29. France's CAC-40 slid 0.3 percent to 3,607.69 and Greek and Portuguese stocks also fell. Stocks were mostly higher earlier.

Asia had largely closed higher before China announced its move to limit lending, and Wall Street was expected to fall on the open. Dow industrials futures were down 65 points at 10,045.00 and Standard & Poor's 500 futures were down 7.6 points at 1,069.80.

In a bid to cool off growth, China raised its reserve rate by half a percentage point, which requires large banks to set aside more cash at the central bank, leaving less money to slosh around the economy.

Because Chinese growth has been one of the main drivers behind the global economy's recovery from the downturn, the news unsettled investors.

Adding to the sour mood were official figures in Europe showing the 16-country eurozone grew by only 0.1 percent in the fourth quarter, with weak countries like Greece stifling the region's recovery from recession. Even the currency bloc's biggest economy and engine of growth, Germany, disappointed expectations as its GDP remained flat on the quarter.

"The slowdown in growth at the end of 2009 is a blow," said Jennifer McKeown, economist at Capital Economics.

She said surveys suggest the eurozone's recovery will pick up speed again this year, "but with fiscal consolidation threatening to prevent a meaningful pick-up in domestic spending, the downside risks for the region are growing."

The euro fell sharply after the data, from $1.36 before the figures to as low as $1.3538, the weakest level in nine months. It traded as high as $1.3693 late Thursday in New York. The dollar rose to 89.93 yen from 89.74 yen.

Friday's news dampened the cautious optimism generated Thursday by EU leaders' pledge to support Greece in case it has trouble handling its debt. Although some investors were disappointed with a lack of detail and concrete measures, the hope is that a finance ministers' meeting next week will provide these.

"Yesterday's announcement feels like only half the job has been completed, leaving the market dangling and hungry for more information," said Stuart Bennett, analyst at Calyon.

In Asia, where markets mostly closed before China's rate announcement, Japan's market, closed Thursday for a public holiday, led gains, with the Nikkei 225 advancing 1.3 percent to 10,092.19.

Trading activity has been subdued the past few days ahead of holidays next week for the Lunar New Year in China, Hong Kong and elsewhere.

The Shanghai Composite index jumped 1.1 percent to 3,018.13. Hong Kong's Hang Seng reversed early gains to close down 0.1 percent at 20,268.69.

Elsewhere, South Korea's Kopsi dropped 0.3 percent to 1,593.66 and Australia's benchmark added 0.2 percent. Markets in Singapore, Thailand, Malaysia and Indonesia also rose while Indian markets were shut for a public holiday.

In Sydney trade, shares in resource companies rose with BHP Billiton up 1.1 percent and Rio Tinto up 3.2 percent, on hopes of continuing strong Chinese demand for ore and other minerals.

Toyota Motor Corp. shares rose 2.1 percent in Tokyo after the company said its top executive will visit the U.S. in early March to meet with government officials and reassure rattled car owners after the automaker's massive recalls.

In the U.S. on Thursday, the Dow rose 1.1 percent to 10,144.19, its highest close in more than a week. The S&P 500 rose 1 percent to 1,078.47.

Oil prices were lower in European trading, with benchmark crude for March delivery off $1.32 at $73.96. The day before it jumped 76 cents to settle at $75.28.

[Associated Press; By CARLO PIOVANO]

AP Business Writer Erika Kinetz in Mumbai contributed to this report.

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