China lending fears weigh on world markets

[February 04, 2010]  LONDON (AP) -- China's main stock market led global exchanges lower Wednesday as investors fretted about the possibility of further lending curbs in the country. A raft of U.S. bank earnings later also kept investors on edge.

In Europe, the FTSE 100 index of leading British shares was down 18.54 points, or 0.3 percent, at 5,494.60 while Germany's DAX fell 19.36 points, or 0.3 percent, at 5,957.12. The CAC-40 was 7.35 points, or 0.5 percent, lower at 4,002.32.

Earlier in Asia, China's main Shanghai Composite Index dived 95.02 points, or 2.9 percent, to 3,151.85 following a newspaper report that some banks were ordered to cease lending for the rest of January after exceeding credit limits. That raised fears China's recovery could wane, undermining a fragile global economy.

The Chinese markets were already jittery following a speech Tuesday night by Premier Wen Jiabao that many interpreted as a sign the flow of easy credit will be stanched.

Beijing has already begun to take steps to rein in stimulus-fueled liquidity, raising reserve requirements for banks and increasing the rate paid on treasury bills.

On Thursday, China will be the world's first major economy to release fourth quarter gross domestic product figures. Analysts expect economic growth to have remained robust at over 10 percent on an annual basis, and that would underline need for some monetary tightening.

"A teeny-weeny bit of tightening against such a growth backdrop does make sense," said Kit Juckes, chief economist at ECU Group.

The news in China came after the Standard & Poor's 500 index closed above 1,150 on Tuesday. Drug and health care stocks led the Wall Street advance as investors correctly predicted that the Republicans would win the Senate election race in Massachusetts, thereby making it harder for President Barack Obama to get his health care reform program enacted.

The mood is tentative, however, ahead of the U.S. open as investors will have a slew of U.S. bank earnings to wade through. Morgan Stanley, Bank of America, Wells Fargo and Bank of New York Mellon are all expected to report later.

"As with Citigroup yesterday particular attention will be paid to loan loss provisions and any comments on possible further write downs," said Michael Hewson, an analyst at CMC Markets.

Dow futures were down 37 points, or 0.4 percent, at 10,633 while the broader S&P 500 futures fell 4.3 points, or 0.4 percent, at 1,141.40.

Elsewhere in Asia, Hong Kong's Hang Seng index fell 391.81 points, or 1.8 percent, to 21,286.17 while Japan's Nikkei 225 stock average lost 27.38 points, or 0.3 percent, to 10,737.52. Once again, Japan Airlines was in focus, slumping 60 percent to 2 yen after filing for one of the country's largest bankruptcies on Tuesday. JAL shares will be removed from the stock exchange on Feb. 20.

Singapore's market was off 0.7 percent, Taiwan retreated 0.3 percent and Thailand's stock measure lost 0.8 percent.

South Korea's Kospi shrugged off the regional fall, advancing 0.2 percent to 1,714.38 and Australia's stock measure crept higher by 0.1 percent.

Oil prices fell amid expectations a U.S. crude inventory report will show demand for the commodity remains weak.

Benchmark crude for February delivery slid 64 cents to $78.38 in electronic trading on the New York Mercantile Exchange. The contract rose $1.02 to settle at $79.02 on Tuesday.

The dollar was flat around 91 yen while the euro fell to $1.4183 from $1.4291 amid ongoing concerns about Greece's debt situation and the government's ability to get a grip on the public finances.

[Associated Press; By PAN PYLAS]

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