World stocks slip on worries of Chinese policy tightening, weak EU growth figures

World markets hit by China rate hike, weak EU data

LONDON — European and U.S. 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.

Britain’s FTSE 100 benchmark index was down 0.6 percent at 5,130.77 while Germany’s DAX fell 0.5 percent to 5,479.21. France’s CAC-40 slid 0.3 percent to 3,606.17 and Greek and Portuguese stocks also fell.

Asia had largely closed higher before China announced its move to limit lending, and Wall Street fell on the open. The Dow Jones industrial average was down 1 percent at 10,043.14 and the Standard & Poor’s 500 index fell 1 percent to 1,068.00.

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.”

The euro fell sharply after the data, to as low as $1.3538, a nine-month low after trading as high as $1.3693 late Thursday in New York. By the afternoon on Friday it was at $1.3558. The dollar rose to 89.93 yen from 89.74 yen.

Friday’s news dampened the cautious optimism generated Thursday by EU leaders’ pledge to support Greece in case it has trouble handling its debt. Although some investors were disappointed with a lack of detail and concrete measures, the hope is that a finance ministers’ meeting next week will provide these.

“Yesterday’s announcement feels like only half the job has been completed, leaving the market dangling and hungry for more information,” said Stuart Bennett, analyst at Calyon.

In the U.S., an upbeat report by the Commerce Department showing retail sales rose 0.5 percent in January failed to raise spirits. Markets had been expecting a more moderate rise of 0.3 percent.

In Asia, where markets mostly closed before China’s rate announcement, Japan’s market, which had been closed Thursday for a public holiday, led gains. The Nikkei 225 advanced 1.3 percent to 10,092.19.

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.

The Shanghai Composite index jumped 1.1 percent to 3,018.13. Hong Kong’s Hang Seng reversed early gains to close down 0.1 percent at 20,268.69.

Elsewhere, South Korea’s Kospi dropped 0.3 percent and Australia’s benchmark added 0.2 percent. Markets in Singapore, Thailand, Malaysia and Indonesia also rose while Indian markets were shut for a public holiday.

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.

Oil prices slumped in European trading, with benchmark crude for March delivery off $2.10 at $73.18. The day before it jumped 76 cents to settle at $75.28.

AP Business Writer Erika Kinetz in Mumbai contributed to this report.