World stocks down as China, India rate hikes loom

[June 15, 2011]  BANGKOK (AP) -- World stock markets mostly slipped Wednesday as investors anticipated growth-denting rate hikes by central banks in India and China to contain stubbornly high inflation.

Oil prices hovered around $99 a barrel after a report showed U.S. crude inventories fell more than expected, suggesting demand may be improving. The dollar was up against the euro and unchanged against the yen.

In early European trading, Britain's FTSE 100 slipped 0.2 percent to 5,788.97. Germany's DAX and France's CAC-40 each lost 0.3 percent. Wall Street was set to head lower, with Dow Jones industrial futures and S&P futures both down 0.5 percent.

Asian shares fared only slighter better.

Japan's Nikkei 225 stock average closed up 0.3 percent to 9,574.32. Honda Motor Corp. gained 2 percent a day after the company announced that vehicle production in Japan is expected to be back at nearly normal levels by later this month and, outside of Japan, by August or September.

Japanese manufacturing was disrupted by a huge earthquake and tsunami on March 11 but analysts say the recovery at Honda and other Japanese automakers has been remarkable.

South Korea's Kospi also rose, by 0.5 percent to 2,086.53.

Other markets fell amid expectations that China's central bank will go ahead with at least one more interest rate hike this month or next.

Hong Kong's Hang Seng dropped 0.7 percent to 22,343.77. Australia's S&P/ASX 200 lost 0.4 percent to 4,566.80. Benchmarks in Singapore and Thailand were also down, while those in Taiwan and New Zealand rose.

China's May's inflation rate of 5.5 percent was the highest since July 2008. Beijing has made taming price increases a priority but its measures could also slow growth in the world's second-largest economy.

On Tuesday, China's central bank lifted the ratio of funds banks must set aside as reserves by a half point. That action in itself may have dampened investor appetite, analysts said.

The benchmark Shanghai Composite Index lost 0.9 percent to 2,705.43, while the Shenzhen Composite Index of China also fell 0.9 percent to 1,118.17. Shares in Inner Mongolia companies were among the gainers, while shipping industry companies weakened.

Inflation is also buffeting India's economy, the third largest in Asia. The Reserve Bank of India, which has raised key policy rates nine times since March 2010 in an effort to tame inflation, is expected to raise borrowing costs again at a monetary policy review Thursday.

Dampening expectations of global growth has led investors to scale back on stocks, according to a survey of fund managers by Bank of America Merrill Lynch.

The survey of institutional fund managers, conducted between June 3-9, shows investment portfolios being adjusted in the face of falling world markets, with a significant reduction for equities. The net percentage overweight equities fell to 27 percent from 41 percent in May, the survey said.

"EU sovereign risk is still cited as the major risk factor for investors," said a BofA Merrill Lynch Global Research report, referring to the debt crisis in Greece that has left the country teetering on the brink of default. A worsening of Greece's problems could spread panic in financial markets and drag down other struggling countries like Portugal, Ireland or Spain.

In New York, a government report Tuesday on retail sales in May was better than expected, driving stocks higher. The government said retail sales edged down 0.2 percent last month, but economists had expected worse.

Excluding weak car sales, retail sales rose 0.3 percent. Americans bought fewer cars during the month, but that was more a reflection of production disruptions caused by the earthquake and tsunami disaster in Japan.

The Dow Jones industrial average rose 1 percent to close at 12,076.11. The Standard & Poor's 500 index rose 1.3 percent to 1,287.87. The Nasdaq composite index rose 1.5 percent to 2,678.72.

Benchmark oil for July delivery was down 65 cents to $98.72 a barrel in electronic trading on the New York Mercantile Exchange. The contract gained $2.07 to settle at $99.37 on Tuesday.

In currencies, the euro dropped to $1.4353 from $1.4468 late Tuesday in New York. The dollar strengthened to 80.67 yen from 80.52 yen..

[Associated Press; By PAMELA SAMPSON]

AP researcher Fu Ting contributed from Shanghai

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