Stock futures drop on China inflation worries

[November 12, 2010]  NEW YORK (AP) -- Stock futures fell Friday as investors worried that China might try to slow its surging economy to combat inflation.

Major Chinese indexes tumbled amid worries the government might raise interest rates to combat mounting inflation. The Chinese government said Thursday that the pace of inflation hit a more than two-year high in October.

Cooling China's economy could have an impact worldwide because the country's robust economy has helped offset sluggish growth in places like the U.S. Many companies have credited international sales, particularly in China, as a reason earnings have been strong.

A slowdown in China without stronger growth elsewhere could put a crimp in corporate profits.

The speculation about a rate hike in China came as little headway was made on a plan to strengthen global growth. Leaders from the Group of 20, which includes large developed and emerging economies, failed to agree on policies about trade and currency manipulation that could stoke protectionism and a trade war.

The group refused to endorse a plan the U.S. presented to force China to allow the value of its currency to rise. The U.S. argues that China is keeping the value of its currency artificially low because a weak currency makes exports cheaper and more attractive globally. That, in turn, gives China an unfair advantage in global markets, helping its economy at the expense of others.

The U.S. position was undermined in recent weeks though because of its own actions. The Federal Reserve last week announced a plan to buy government debt in an effort to spark growth. However, that plan also weakens the value of the dollar, which could eventually help its own exports.

Ahead of the opening bell, Dow Jones industrial average futures fell 49, or 0.4 percent, to 11,193. Standard & Poor's 500 index futures fell 6.90, or 0.6 percent, to 1,204.20, while Nasdaq 100 index futures fell 15.75, or 0.7 percent, to 2,156.75.

The Shanghai composite index plummeted 5.2 percent Friday, while Hong Kong's Hang Seng tumbled 1.9 percent.

The dollar continued to rally against the euro, but resumed its slide against other major currencies. The euro has struggled in recent days as traders are again worried about mounting government debt in some nations that use the currency. Ireland's struggles are the latest to spook investors.

Bond prices fell, sending interest rates higher. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 2.67 percent from 2.65 percent late Wednesday. The bond market was closed Thursday for Veterans' Day.

[Associated Press; By STEPHEN BERNARD]

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