European stock markets lost ground yesterday when investors sold off risky assets after China announced anti-inflation measures that could be seen as a possible threat to growth.
China’s central bank said it would raise the amount of money that lenders must keep in reserve as the world’s second-largest economy struggled to tackle soaring inflation and housing costs.
The People’s Bank of China said the reserve ratio would be raised by 0.50 percentage points, effective November 29, in the fifth hike this year and the second this month.
But it stopped short of raising overall interest rates, which would likely spark worldwide concerns of a global economic slowdown.
“The market doesn’t like to entertain the idea of growth slowing in China, because it is cognisant (that) earnings growth prospects could be curtailed if China isn’t firing on all cylinders at a time when growth in advanced economies is still sub-par,” said analyst Patrick O’Hare of Briefing.com.
GFT analyst David Morrison said that in Europe the Chinese action “led to a sell-off in risk assets”.
In London, the FTSE 100 index shed 0.62 per cent to 5,732.83 points while in Paris the CAC 40 lost 0.20 per cent to 3,860.16 points. The Frankfurt DAX, bolstered by announcements from auto maker Volkswagen and pharmaceutical group Bayer, edged up 17 per cent to 6,843.55 points.
VW said it would invest €51.6 billion by 2015 in a bid to eclipse Toyoto as the world’s leading auto maker in 2018 while Bayer on Thursday announced a cost-cutting drive and plans to cut thousands of jobs.
Elsewhere in Europe, Milan fell 0.20 per cent, Madrid 0.52 per cent, Amsterdam 0.49 per cent and the Swiss Market Index 0.34 per cent.
Also weighing on sentiment was the uncertain financial future of Ireland, where European Union and International Monetary Fund finance experts were locked in negotiations on a possible bailout for the debt-ridden economy.
Reports said the talks focused on shoring up Ireland’s crisis-hit banks, kept afloat up to now with billions of euros from the government at the cost of straining the public finances to breaking point.
In another development, Allied Irish Banks (AIB) disclosed that customer account deposits had plunged €13 billion since January.
Customer deposits accounted for 50 per cent of the bank’s overall funding at the end of September and comprised its largest source of income, according to AIB. AIB said yesterday that the bailout talks would be vital for investor sentiment towards the group.
“We note discussions that may impact the banking sector are ongoing between the Irish government, the EU and other institutions,” it said.
“The outcome of these discussions is expected to be important in determining market sentiment and conditions.”
Earlier in Asia, Tokyo stocks pushed higher and Shanghai showed signs of reviving at the end of a jittery week on Asian markets marked by worries about the eurozone and the Chinese steps to damp down inflation.