LONDON, Feb 12, (Agencies): European and US markets fell Friday after China tightened its monetary policy to cool off growth and official figures showed the eurozone’s recovery from recession nearly stalled in the fourth quarter.
European indexes had been higher earlier, buoyed by hopes that the EU will provide support to its most heavily indebted member states, but by the afternoon that optimism was dampened, pushing the euro to a nine-month low.
Asia had largely closed higher before China announced its move to limit lending, and Wall Street fell on the open.
In a bid to cool off growth, China raised its reserve rate by half a percentage point, which requires large banks to set aside more cash at the central bank, leaving less money to slosh around the economy.
Because Chinese growth has been one of the main drivers behind the global economy’s recovery from the downturn, the news unsettled investors.
Adding to the sour mood were official figures in Europe showing the 16-country eurozone grew by only 0.1 percent in the fourth quarter, with weak countries like Greece stifling the region’s recovery from recession. Even the currency bloc’s biggest economy and engine of growth, Germany, disappointed expectations as its GDP remained flat on the quarter. “The slowdown in growth at the end of 2009 is a blow,” said Jennifer McKeown, economist at Capital Economics.
She said surveys suggest the eurozone’s recovery will pick up speed again this year, “but with fiscal consolidation threatening to prevent a meaningful pick-up in domestic spending, the downside risks for the region are growing.”

US
US stocks skidded Friday after China said for the second time in a month it would force its banks to reduce their lending.
The Dow Jones industrial average fell 105 points in midday trading after China said it would require banks to increase reserve levels. The surprising move comes a day after a tame inflation report raised hopes that China wouldn’t have to further tighten its monetary policy or take other steps to put the brakes on its supercharged economy.
Chinese regulators are trying to contain rapid economic growth there to prevent speculative investment bubbles. Investors worry that a slowdown in China could disrupt a US recovery by hurting exports and profits of companies that do business there.
A similar action to curb bank lending nearly a month ago in China spooked the market and helped start a slide that has brought major indexes down for four straight weeks. As of late morning the Dow was trading just above 10,000 and barely in the black for the week. David Chalupnik, head of equities at First American Funds, said the market might recoil at first but that China is doing the right thing to avoid letting its economy grow so fast that inflation becomes a problem. Damage to China’s economy would hurt US companies.

“We are very much intertwined with them because they do export so much here to the US and we export to them as well,” he said.
Concerns about debt problems in European countries like Greece, Spain and Portugal, as well as President Barack Obama’s push for new regulations on banks also weighed on the market and increased volatility in recent weeks.
On Thursday, European Union leaders pledged to provide Greece with support as it tries to bring its debt problems under control. There has been concern that debt problems there could spread and destabilize Europe’s common currency, the euro.
The mood soured further after a disappointing report on consumer sentiment. The preliminary Reuters/University of Michigan consumer sentiment index for February fell to 73.7 from 74.4 in January and was weaker than forecast.
In midday trading, the Dow fell 104.82, or 1 percent, to 10,039.37. The Standard & Poor’s 500 index dropped 9.68, or 0.9 percent, to 1,068.79, while the Nasdaq composite index fell 10.58, or 0.5 percent, to 2,166.83.

Europe
European shares ended a four-day winning run on Friday after China surprised financial markets by raising banks’ reserve requirements, though demand for defensive stocks helped limit losses.
The FTSEurofirst 300 index of leading European shares closed 0.3 percent lower to 987.86 points, after trading as high as 1,002.50 earlier in the session.
Banks were among the worst performers, with Barclays, BNP Paribas, HSBC, Societe Generale, Lloyds Banking Group, Banco Santander and Credit Agricole down 1.1 to 3.2 percent.
Greek bank shares sagged 5 percent after Greece’s economy shrank more than feared last quarter, while a European Union government source said meetings of the region’s finance ministers next week were unlikely to put together an aid package for Athens.
Miners were also out of favour as the market was concerned monetary tightening by China would dampen metal demand.
Rio Tinto, Anglo American, Xstrata, Vedanta Resources, Kazakhmys and Antofagasta dropped 0.3 to 2.5 percent.
“People are nervous because the economic recovery is quite fragile,” said Mark Bon, fund manager at Canada Life in London.
Across Europe, the FTSE 100 lost 0.4 percent, Germany’s DAX dipped 0.1 percent and France’s CAC 40 eased 0.5 percent.

UK
Britain’s top share index fell on Friday, led lower by banks and commodity stocks on monetary tightening in China and downbeat growth figures from the euro zone, while defensive stocks were in demand.
The FTSE 100 closed down 19.03 points, or 0.4 percent, at 5,142.45. The index was in positive territory at the start of the session, rising as high as 5,207.73, before a surprise move by China to increase the level of reserves commercial banks must hold to curb lending and inflation.
The sell-off was compounded by news the euro zone’s economic recovery stumbled in the final quarter of 2009 as gross domestic product barely expanded, dragged down by a poor German performance despite healthy figures from France.
Banks were in the doldrums, with underlying sentiment also cautious over the detail of the European Union’s Greek rescue plan, and ahead of the sector’s upcoming reporting season.
Barclays, which is due to report full-year results on Tuesday, fell 2.4 percent.
The FTSE 100 index rose 1.6 percent for the week, recouping some of the previous week’s 2.5 percent decline.

Asia
A tame report Thursday on Chinese inflation also raised hopes that Beijing would not move aggressively to slow the economy and cool demand for natural resources.
The US Labor Department, meanwhile, said first-time claims for jobless benefits fell more than expected last week, which economists hope will signal a lasting recovery.
That good news helped bring buyers back into Asia markets. But trading activity has been subdued the past few days ahead of holidays next week for the Lunar New Year in China, Hong Kong and elsewhere.
Japan’s Nikkei 225 stock average advanced 128.20 points, 1.3 percent, to 10,092.19 and the Shanghai Composite index jumped 32.63, or 1.1 percent, to 3,018.13. Hong Kong’s Hang Seng reversed early gains to close down 22, or 0.1 percent, at 20,268.69.

Elsewhere, South Korea’s Kopsi dropped 4.15, or 0.3 percent, to 1,593.66. Australia’s benchmark added 0.2 percent and markets in Singapore, Thailand, Malaysia and Indonesia also rose. Indian markets were shut Friday for a public holiday.
In Sydney trade, shares in resource companies rose with BHP Billiton up 1.1 percent and Rio Tinto up 3.2 percent, on hopes of continuing strong Chinese demand for ore and other minerals. Toyota Motor Corp. shares rose 2.1 percent in Tokyo after the company said its top executive will visit the U.S. in early March to meet with government officials and reassure rattled car owners after the automaker’s massive recalls.
Japanese financial markets were closed for a national holiday Thursday, when Europe pledged to help Greece with its debt. Although short on details, the move eased the market’s concerns about the problems spreading to other financially strapped countries like Portugal and Spain.
Companies doing business in raw materials rose sharply, bolstered by an overnight jump in metal and energy prices.

Trading house Mitsui & Co soared 5.6 percent to 1,350 yen, while rival Mitsubishi Corp closed 3.3 percent higher at 2,225 yen. Toho Zinc Co shot up 6 percent to 409 yen.
Investors also snapped up individual companies reporting strong earnings.
Advertising giant Dentsu Inc advanced 5.5 percent to 2,107 yen after raising its annual profit estimates.
“Margins improved and steady progress is being made on controlling costs, so we had a very positive impression,” said Credit Suisse analyst Takashi Murakami.
Asahi Glass Co, Japan’s biggest glass maker, rose 6.9 percent to 946 yen. The company said Wednesday that it expects profit this fiscal year through December to more than triple.
Chinese Markets are closed next week and trading resumes Feb 22.

Investors were reassured after lower-than-expected January inflation data were released this week, reducing pressure on Beijing to hike interest rates, which might reduce liquidity in the market.
“The alarm about a rise in interest rates has dissolved,” said Zhang Qi, an analyst for Haitong Securities in Shanghai.
Nonferrous metal stocks rose after a plan to consolidate the industry through mergers was submitted to the Cabinet on Thursday. Jiangxi Copper Ltd, the country’s biggest metal producers gained 3.3 percent to 35.9 yuan, while Aluminum Corp of China jumped 1.4 percent to 12.72 yuan.
Bank and real estate shares gained as concern about interest rates eased.
China Construction Bank Ltd climbed by 1.4 percent to 5.69 yuan. Industrial & Commercial Bank of China Ltd, China’s biggest commercial lender, added 0.8 percent to 4.91 yuan, while Bank of China Ltd gained 0.5 percent to 4.13 yuan.
China Vanke Ltd, the country’s biggest developer, added 1 percent to 9.37 yuan and rival Poly Real Estate Group edged up 0.6 percent to 19.47 yuan.

Currencies
The euro fell to a nearly nine-month low against the dollar on Friday as questions remained about a rescue deal for debt-stricken Greece and China unexpectedly raised bank reserve levels.
The euro headed for its fifth weekly drop versus the safe-haven greenback as a lack of details in Thursday’s pledge by the European Union to help Athens kept alive fears of a wider euro zone debt crisis.
That sparked a widening in peripheral euro zone government bond yield spreads against German benchmarks and broader concerns trouble in the currency bloc could hurt global economic recovery.
Investor appetite for stocks and higher-yielding currencies like the Australian dollar was further dampened after China raised the level of bank reserves for the second time this year. The move stoked worries aggressive monetary tightening by China may also slow global recovery.

In midday New York trading, the euro was down 0.4 percent at $1.3625, after dropping to $1.3533, its weakest since May 2009, according to Reuters data.
The euro’s losses pushed the dollar to 80.748 against a currency basket, its highest since July 2009. The ICE Futures’ dollar index was last at 80.315, up 0.4 percent.
The euro rose as high as 1.4701 Swiss francs, according to Reuters data, and was last trading at $1.4669, up 0.1 percent on the day. The dollar also gained versus the Swiss franc and last traded at 1.0764, up 0.5 percent.

Gold
Gold traded mostly slightly higher in Asia and London and rose almost 1% to as high as high as $1086.73 at the open of trade in New York before it fell back to see a $0.70 loss at $1074.60 by about 10 am EST, but it then rose to a new session high of $1094.80 by midday and ended with a gain of 1.58%. Silver fell almost 1% to $15.179 in-midmorning New York trade before it also rallied back higher and ended near its noontime high of $15.637 with a gain of 1.9%.