Asian shares down after China central bank move

[January 17, 2011]  BANGKOK (AP) -- Frenetic selling of Chinese shares led Asian markets lower Monday after Beijing's increase to bank reserve requirements added to worries of further economic tightening. European shares were higher ahead of a debt-crisis meeting.

Oil prices slipped to near $91 a barrel amid prospects for weaker demand for crude. In currencies, the dollar was up against the yen, while the euro slipped against the greenback as European finance ministers prepared to meet in Brussels to try to map out a new strategy to tackle the euro zone's debt troubles.

In early European trading, the FTSE 100 was up 0.1 percent to 6,007.03. Germany's DAX was up 0.1 percent to 7,078.52, while the CAC-40 in Paris added 0.1 percent to 3,985.53.

The benchmark Shanghai Composite Index lost 84.68 points, or 3 percent, to 2,706.66. The Shenzhen Composite Index for China's smaller, second exchange sank 4.3 percent to 1,180.39.

"I'm afraid the market will remain bearish, at least for a while, as it seems there is a consensus that the only way to control current serious inflation is to sacrifice growth," said Liu Kan, an analyst at Guoyuan Securities, in Shanghai.

Asian shares fell as investors digested China's latest move to curb the flood of money sloshing around its economy. China on Friday ordered state-owned banks to set aside an additional 0.5 percent of deposits as reserves, effective Jan. 20. It was the seventh time in a year that the reserve rate was hiked.

China's central bank uses increases in bank reserves to help reduce the amount of cash circulating in the economy. A frenzy of lending over the past two years has helped China rebound quickly from the global crisis. But, combined with bad weather and rising global commodity prices, it has complicated efforts to cool inflation.

Japan's Nikkei 225 stock average closed up by less than 0.1 percent to 10,502.86. South Korea's Kospi was 0.4 percent lower at 2,099.85. Hong Kong's Hang Seng index slipped 0.5 percent to 24,156.97 and Australia's S&P/ASX 200 fell 0.8 percent to 4,763.10.

Benchmarks in New Zealand, Singapore and Taiwan also retreated.

Markets also will be watching meetings between Chinese leader Hu Jintao and President Barack Obama in Washington this week for any signs of improvement in often testy U.S.-China relations. But analysts did not expect major breakthroughs.

"The big story this week is the visit by President Hu, and I suspect they will be all smiles and emphasize the need for cooperation -- and then they'll politely resist each other's demands," said David Cohen of Action Economics in Singapore.

The U.S. wants Beijing to move toward faster appreciation of its currency. The Chinese government intervenes in currency markets to hold down the value of the yuan against the dollar -- by as much as 40 percent, according to U.S. manufacturers. That makes Chinese products cheaper for Americans while increasing the price of U.S. goods in China.

But Beijing says relaxing currency controls too abruptly would damage the Chinese financial system, hurt its exporters and cost jobs.

"I don't think the market is holding its breath" expecting China to relent to U.S. pressure on the yuan, Cohen said.

On Wall Street Friday, the Dow Jones industrial average gained 55.48 points, or 0.5 percent, to 11,787.38. The broader Standard & Poor's 500 index rose 9.48, or 0.7 percent, to 1,293.24. The Nasdaq rose 20.01, or 0.7 percent, to 2,755.30.

While U.S. financial markets were Monday to observe the Martin Luther King Jr. Day holiday, a busy day in Europe was expected as finance ministers meet in Brussels to discuss possible new strategies for solving the debt crisis among countries using the euro common currency.

French Finance Minister Christine Lagarde said one possibility was to give Europe's euro750 billion ($1 trillion) rescue fund the power to buy government bonds on the open market -- or to expand the fund's size. Most analysts say the current strategy to deal with the crisis has failed.

In currencies, the dollar rose to 82.91 yen from 82.80 yen late Friday. The euro fell to $1.3271 from $1.3385.

Benchmark oil for February delivery was down 53 cents at $91.01 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose 14 cents to settle at $91.54 a barrel on Friday.

[Associated Press; By PAMELA SAMPSON]

AP researcher Ji Chen contributed from Shanghai.

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