European stocks wilt on China monetary tightening

European stocks wilted yesterday on news of tighter Chinese monetary policy and disappointing corporate results in the United States.

China’s first interest rate hike in nearly three years rattled global markets and came ahead of key data this week expected to show that the world’s second-largest economy continued to slow in the third quarter.

Sentiment was also dampened by news of a 40 per cent slide in third quarter earnings at US banking giant Goldman Sachs and a $7.3 billion quarterly loss at Bank of America.

Those reports overshadowed strong earnings statements from Citgroup, IBM and Apple.

In London the FTSE 100 index shed 0.67 per cent to close at 5,703.89 points while in Paris the CAC 40 fell 0.71 per cent to 3,807.17. The Frankfurt DAX lost 0.40 per cent and finished at 6,490.69 points.

Elsewhere Milan fell 0.12 per cent, Amsterdam 0.75 per cent and Madrid 0.02 per cent. The Swiss Market Exchange was stable.

Wall Street stocks also tumbled yesterday, with the Dow Jones Industrial Average down 1.18 per cent at 11,012.19 at mid-day, when the tech-heavy Nasdaq had lost 1.24 per cent to reach 2,449.90.

The People’s Bank of China said earlier it would raise the one-year yuan lending rate to 5.56 per cent from 5.31 per cent and the one-year yuan deposit rate to 2.5 per cent from 2.25 per cent.

The move was widely anticipated but it still managed to unsettle investors as it came amid growing concern that the red-hot Chinese real estate sector could overheat and derail the Asian powerhouse despite government efforts to curb soaring property prices and rein in bank lending.

With the economy growing strongly, analysts said it was inevitable that Beijing would hike rates as it continues to wind back stimulus measures introduced to combat the global financial crisis.

“With the economy back on its feet and various sectors exhibiting signs of overheating... Chinese officials felt the need to tighten conditions,” Nick Chamie, Toronto-based head of emerging markets research for Royal Bank of Canada, told AFP.

Market players in Europe also had to cope with a report that German investor confidence fell further in October, with finance experts expecting Europe’s biggest economy to tread water in the coming six months.

The ZEW economic expectations indicator, based on a survey of 282 analysts and institutional investors, fell to minus 7.2 points from minus 4.3 points in September, its sixth consecutive monthly drop to the lowest level in 21 months.

ZEW analysts commented that “the repeated decline of economic sentiment in October indicates that compared to the period of rapid recovery, economic growth is likely to slow down in the next six months.”

Asian shares mostly rose yesterday as the dollar perked up and a touch of optimism crept in following the robust earnings statements from Citigroup, IBM and Apple.

Tokyo’s Nikkei index closed up 0.43 per cent, Hong Kong rose 1.25 per cent and Shanghai added 1.58 per cent.