China's curbs on bank lending weigh on markets

[February 04, 2010]  LONDON (AP) -- Asian shares led the global stock market retreat Wednesday as China's moves to curb bank lending stoked concerns that further monetary tightening may slow down economic recovery.

In Europe, the FTSE 100 index of leading British shares was down 22.72 points, or 0.2 percent, at 5,475.99 while France's CAC-40 fell 6.13 points, or 0.2 percent, to 3,993.92. Germanys DAX, which fell more than its counterparts on Tuesday, bucked the trend, rising by 6.43 points, or 0.1 percent, to 5,949.43.

A fairly subdued opening is expected for Wall Street -- Dow futures were up 9 points, or 0.1 percent, at 10,597 while the broader Standard & Poor's 500 futures rose 1.8 points, or 0.2 percent, at 1,135.70.

Earlier, Hong Kong and Shanghai led Asia down after China's decision to raise the proportion of deposits that banks must hold in reserve from next Monday by half a percentage point. The People's Bank of China also raised the yield it is offering on its one-year bills, its second increase in interbank markets in a week.

"In the week that data showed it had eclipsed Germany as the worlds largest exporter, the desire of policymakers to reel in liquidity by pushing one year yields higher and yesterday up banks reserve requirements has sparked worry that the stimulus led component of the Chinese recovery is set to be choked off," said Stuart Bennett, an analyst at Calyon Credit Agricole.

China has helped support the global economy during the recession and investors are worried it may not be such a big motor of growth in the months ahead, especially if interest rates start to rise, too.

A fairly disappointing start to the fourth quarter U.S. corporate reporting season from Alcoa Inc. earlier this week also continued to weigh on markets.

James Hughes, market analyst at CMC Markets, said the 11 percent share price decline in Alcoa Tuesday "will have many worried about what weaker earnings reports will do."

With economic data this week on the light side, attention will continue to focus on earnings statements to see if the increasing optimism on Wall Street, which has driven a 10-month bull run in stock markets, is justified by the fundamentals.

Key earnings statements on the horizon include those from Intel Corp., the world's biggest chipmaker, on Thursday and Friday's results from JP Morgan Chase & Co.

JP Morgan's results come after a profit warning from French bank Societe Generale SA reminded investors that banks still have toxic assets on their books that could still hobble an economic recovery.

Shares in France's second largest bank slid by around 4 percent after it warned that fourth-quarter profits would be lower than market expectations as it booked another euro1.4 billion ($2 billion) in writedowns and provisions.

Earlier in Asia, Hong Kong's Hang Seng slid 578.04, or 2.6 percent, to 21,748.60 and in mainland China, the Shanghai benchmark tumbled 3.1 percent to 3,172.66.

Japan's Nikkei 225 stock average fell 144.11, or 1.3 percent, at 10,735.03, with Japan Airlines down another 81 percent -- on top of Tuesday's 45 percent collapse -- as investors worried about an imminent bankruptcy filing.

South Korea's Kospi shed 1.6 percent to 1,671.41, Singapore's index fell 0.8 percent and Australia's market retreated by 0.6 percent.

Oil prices lost more ground after a report showed an unexpected jump in U.S. inventories of distillates and gasoline. Benchmark crude for February delivery was down 73 cents to $80.06 a barrel in electronic trading on the New York Mercantile Exchange.

The dollar rose to 91.38 yen from 90.99 yen. The euro rose to $1.4506 from $1.4482.

[Associated Press; By PAN PYLAS]

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