World stocks weighed down by China worries

LONDON: World stock markets fell Wednesday as sentiment continued to be dented by China's moves to curb bank lending and a relatively disappointing start to the U.S. fourth quarter corporate earnings season.

In Europe, the FTSE 100 index of leading British shares was down 44.43 points, or 0.1 percent, at 5,454.27 while France's CAC-40 fell 3.17 points, or 0.1 percent, to 3,996.88. Germanys DAX was down 3.29 points, or 0.1 percent, at 5,939.71.

On Wall Street, the Dow Jones industrial average was down 10.05 points, or 0.1 percent, at 10, 617.21 soon after the open while the broader Standard & Poor's 500 index fell 2.48 points, or 0.2 percent, to 1,133.74.

The retreat on Wall Street came as traders watched the start of congressional testimony about the financial crisis by heads of Wall Street's biggest banks.

Earlier, Hong Kong and Shanghai led Asia down after Chinese authorities raised the proportion of deposits that banks must hold in reserve from next Monday by half a percentage point. The People's Bank of China also raised the yield it is offering on its one-year bills, its second increase in interbank markets in a week.

China has helped support the global economy during the recession and investors are worried it may not be such a big motor of growth in the months ahead, especially if interest rates start to rise, too.

"These moves have weighed on equity markets as investors fret that this is the beginning of a more serious tightening of Chinese monetary policy," said Neil Mackinnon, global macro strategist at VTB Capital.

However, Mackinnon said it is premature to say that this represents the beginning of a "serious tightening" of monetary policy in China which could derail the economy.

A fairly disappointing start to the fourth quarter U.S. corporate reporting season from Alcoa Inc. earlier this week also continued to weigh on markets.

James Hughes, market analyst at CMC Markets, said the 11 percent share price decline in Alcoa Tuesday "will have many worried about what weaker earnings reports will do."

With economic data this week on the light side, attention will continue to focus on earnings statements to see if the increasing optimism on Wall Street, which has driven a ten-month bull run in stock markets, is justified by the fundamentals.

Key earnings statements on the horizon include those from Intel Corp., the world's biggest chipmaker, on Thursday and Friday's results from JP Morgan Chase & Co.

JP Morgan's results come after a profit warning from French bank Societe Generale SA reminded investors that banks still have toxic assets on their books that could still hobble an economic recovery.

Shares in France's second largest bank slid by around 4 percent after it said fourth-quarter profits would be lower than market expectations as it booked another euro1.4 billion ($2 billion) in writedowns and provisions.

Earlier in Asia, Hong Kong's Hang Seng slid 578.04 points, or 2.6 percent, to 21,748.60 and in mainland China, the Shanghai benchmark tumbled 3.1 percent to 3,172.66.

Japan's Nikkei 225 stock average fell 144.11, or 1.3 percent, at 10,735.03, with Japan Airlines down another 81 percent on top of Tuesday's 45 percent collapse as investors worried about an imminent bankruptcy filing.

South Korea's Kospi shed 1.6 percent to 1,671.41, Singapore's index fell 0.8 percent and Australia's market retreated by 0.6 percent.

Oil prices lost more ground after a report showed an unexpected jump in U.S. inventories of distillates and gasoline and traders worried about the impact of slower Chinese economic growth. Benchmark crude for February delivery was down 87 cents to $79.82 a barrel in electronic trading on the New York Mercantile Exchange.

The dollar rose to 91.26 yen from 90.99 yen. The euro rose to $1.4522 from $1.4482.