World stocks down amid China lending curbs reports

[October 12, 2010]  BANGKOK (AP) -- World markets sank Tuesday amid reports China had raised reserve requirements for banks to cool lending and as investors awaited minutes from the U.S. Federal Reserve's last meeting.

All major European indexes were lower following losses in Asia while Wall Street was set to fall, with Dow futures down 73 points, or 0.7 percent, at 10,890.00.

Oil prices fell to near $81 a barrel as the recent gains in global stock markets stalled. The dollar dropped against the yen but gained against the euro.

China told its top six banks to increase reserves in a new move to control lending, news reports said Tuesday, as Beijing tries to cool inflation and housing prices without derailing its recovery from the global slump.

There was no government announcement, but Goldman Sachs said its researchers received confirmation of the order from bank employees. Reports said the banks were told to increase reserves by 0.5 percentage points to 17.5 percent of their deposits.

Kazuhiro Takahashi, equity strategist at Daiwa SMBC Securities Co. Ltd. in Tokyo, said the surprise move by China raised worries that China's economy could slow further.

"Investors expect China's move to tighten lending will dampen the country's red-hot real estate market, and they are worried that a cooling housing market could well slow consumer spending and investments," Takahashi said.

Traders have been pushing stock markets higher over the past two weeks, expecting that the Federal Reserve will act at its next meeting in early November to drive interest rates lower and stimulate the flagging U.S. economy. But the necessity for such moves has also created nervousness about the prospect of a double dip recession.

Adding to the cautious mood was the release later Tuesday of minutes of the Fed's September meeting. The minutes will be scrutinized for further hints that the U.S. central bank is poised to further loosen monetary policy.

Markets are also awaiting earnings this week from top U.S. firms including Intel Corp., JP Morgan Chase & Co. and General Electric Co. that could provide more evidence the U.S. economic recovery is fading.

Major European indexes were lower in early trading. London's FTSE 100 was down 1.2 percent to 5,602.75. The CAC-40 in France was lower by 1.6 percent to 3,707.88. Germany's DAX was off 1.6 percent at 6,245.96.

Japan's benchmark Nikkei 225 stock index slid 200.24 points, or 2.1 percent, to close at 9,388.64 after being closed for a holiday Monday. Continued strength in the yen weighed on exporters even as Finance Minister Yoshihiko Noda threatened intervention to weaken the currency.

South Korea's Kospi slipped 1.2 percent to 1,868.04. Australia's S&P/ASX 200 fell 1.7 percent to 4,618.20 and Hong Kong's Hang Seng index declined 0.4 percent to 23,121.70.

One notable exception was the benchmark Shanghai Composite Index, which rose 34.47 points, or 1.2 percent, to 2,841.41. China's financial markets are largely closed to foreign investment and often follow different cues.

Gains were led by market heavyweights Sinopec and PetroChina, despite the central bank's move to curb lending by increasing reserves ratios for some banks.

"Optimism over the economy has offset the worries over curbs on liquidity," said Chen Kaiwei, an analyst at Changjiang Securities in Shanghai.

In New York overnight, the Dow Jones Industrial Average edged up 3.86 points, or 0.04 percent, to close at 11,010.34 Monday.

The dollar fell to 81.92 yen from its New York close of 82.16 yen but was off a fresh 15-year low of 81.37 yen in Sydney late Monday -- nearing its post World War II low of 79.75 yen set in 1995. The euro fell to $1.3810 from $1.3862.

Benchmark oil for November delivery was down 91 cents to $81.29 a barrel in electronic trading on the New York Mercantile Exchange. The contract lost 45 cents to settle at $82.21 on Monday.

[Associated Press; By PAMELA SAMPSON]

Associated Press writer Shino Yuasa in Tokyo, AP researcher Ji Chen in Shanghai and AP business writer Joe McDonald in Beijing contributed.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.