World markets sink on China central bank action

[April 18, 2011]  BANGKOK (AP) -- World stocks sank Monday, a day after China's central bank undertook yet another anti-inflation move in an attempt to get control of fast-rising consumer prices.

Oil prices fell below $109 a barrel as gasoline prices jumped to $4 a gallon in six U.S. states, raising fears higher fuel costs will undermine crude demand.

European shares were down in early trading. Britain's FTSE 100 was 0.4 percent lower to 5,969.91. Germany's DAX slipped 0.7 percent to 7,127.41, and France's CAC-40 was down 0.9 percent to 3,938.55.

Wall Street was headed to a lower opening as well, with Dow Jones industrial futures off 0.5 percent to 12,243 and S&P 500 futures down 0.6 percent to 1,310.50.

Japan's Nikkei 225 index fell 0.4 percent to close at 9,556.65, with shares of Toyota Motor Corp. falling 0.5 percent as it remained unclear when the world's No. 1 automaker would resume full production in Japan.

Toyota said Monday it had resumed production at all of its plants in Japan for the first time since last month's massive earthquake and tsunami, but they were operating at only half-capacity due to parts shortages.

Markets had difficulty shrugging off the latest move by China's central bank to tamp down inflation, which jumped to a 32-month high in March. On Sunday, the People's Bank of China announced that the deposit reserve ratio for most banks would be raised -- the fourth reserve increase this year.

Beijing's failure to cool prices and growth have frustrated communist leaders who also face mounting foreign pressure to allow China's yuan to rise in value and narrow its swollen trade surplus. Reflecting rising official urgency, Premier Wen Jiabao last week called for authorities to step up the anti-inflation fight.

Dariusz Kowalczyk, senior economist at Credit Agricole CIB in Hong Kong, said the reserve ratio hike was not surprising given Wen's "hawkish comments."

"Inflation is the main risk to economic and social stability, and given strong growth, fighting price pressures is becoming the paramount objective of policy makers," Kowalczyk said.

Monetary policy tightening moves often stymie investor sentiment, as they did Monday, on concerns growth will be hampered. Hong Kong's Hang Seng dropped 0.7 percent to 23,830.31 and South Korea's Kospi slipped 0.1 percent to 2,137.72. Benchmarks in India, Singapore, Taiwan and Indonesia were also lower.

Property stocks tend to lose their luster when interest rate hikes are believed to be imminent, as analysts have been predicting about China, since higher rates make it more expensive for people to borrow money to buy homes. Two Hong Kong-listed blue chip shares fell: China Overseas Land & Investment Ltd., by 2.1 percent; and China Resources Land Ltd., by 3 percent.

Australia's S&P/ASX 200 went against the trend, adding 0.2 percent to 4,861.90. Mainland China's Composite Index also rose -- 0.2 percent to 3,057.33, its highest close in five months. The smaller Shenzhen Composite Index was up marginally to 1,281.99.

Textile makers, boosted by encouraging news about the U.S. economy, were among the gainers. Shanghai-listed China Garments Co. Ltd., one of the country's largest textile producers, soared 6.3 percent.

The Federal Reserve reported late last week that U.S. factories increased production for the ninth straight month. Separately, the Labor Department said consumer prices rose just 0.1 percent last month excluding food and gas prices -- lower than economists were expecting. Consumer confidence also gained.

Benchmark crude for May delivery was down 87 cents to $108.79 a barrel in electronic trading on the New York Mercantile Exchange. The contract settled at $109.66 per barrel on Friday after rising as high as $110.10.

In currencies, the euro dropped to $1.4328 from $1.4436 in New York on Friday. The dollar dropped to 82.63 yen from 83.13 yen.

[Associated Press; By PAMELA SAMPSON]

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