Financial markets rattled by China rate hike – TOI

Posted on February 8, 2011 by

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Europe’s stock markets struggled Tuesday on fresh concerns that a new Chinese interest rate hike could dampen the Asian tiger’s impressive economic growth, dealers said.

The news took the shine off an impressive overnight rally on Wall Street that was rooted in hopes of an improving global economy, they added.

London’s FTSE 100 index of top shares slipped 0.14 percent to 6,042.91 points nearing the half-way mark on Tuesday.

Frankfurt’s DAX 30 firmed 0.20 percent to 7,297.07 points, the Paris CAC 40 was flat at 4,091.78 points and the Stoxx 50 index of top eurozone companies increased by just 0.03 percent to 3,032.27.

In foreign exchange deals, the euro climbed to 1.3644 dollars, compared with 1.3581 dollars late in New York on Monday.

And in commodities, London Brent oil prices slid under $99 amid fresh jitters about the outlook for Chinese, the world’s biggest energy consumer.

China’s central bank on Tuesday raised interest rates for the third time in four months, as authorities ramp up efforts to tame inflation amid fears it could trigger social unrest.

The People’s Bank of China said in a brief statement that it would raise the one-year deposit and lending rates by 25 basis points each, taking the rates to 3.0 percent and 6.06 percent respectively.

“Today’s interest rate hike in China, on the eve of China’s return to work after the New Year break, was widely expected,” said Capital Economics analyst Mark Williams.

“The announcement may cause jitters about the impact tightening will have on Chinese growth but these should not be overplayed.”

In October, the BoC raised rates for the first time in nearly three years as they try to restrain a flood of liquidity which has been fanning inflation and driving up property prices. They hiked them again on Christmas Day.

News of Tuesday’s rate move hit London’s mining sector particularly hard, dealers noted.

“When news filtered into the markets of a Chinese interest rate hike of 25 basis points, traders sold off mining stocks, forcing the sector lower,” said City Index analyst Sean Power.

“Traders have been expecting more fiscal action from China to curb spiralling inflation and this is seen as the latest move in those efforts.

“As a result, the sell off was more of a knee jerk reaction and can be seen by and large as more of a subdued response by traders.”

Prior to the China news, markets were given a strong cue by Wall Street, where the Dow Jones Industrial Index jumped 0.57 percent to its strongest finish since June 2008.

The US markets were lifted by an improving economic outlook, which has in turn provided a fillip to global shares, dealers said.

Tokyo surged ahead on the back of the US rally, with other markets witnessing mixed trade, while reduced tensions in Egypt cooled oil prices.

Japan’s Nikkei index ended the session up 0.41 percent at 10,635.98 points, hitting a level not seen since last May.

Sydney closed 0.45 percent higher at 4,890.4 points, a 10-month high, as financial firms were given a lift by their US peers.

But Hong Kong ended down 0.29 percent, led by property developers amid expectations of measures to cool the local real estate market.

And Seoul slid 0.58 percent amid concerns over possible tightening measures around Asia as countries try to tame inflation in the region.

Traders were also buoyed by receding fears that the chaos in Egypt — where anti-government protesters are calling for President Hosni Mubarak to step down — could spread to the rest of the region.

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