European stock markets retreated yesterday with sentiment dampened by a rise in Chinese interest rates, while the euro edged higher.
In Paris, the CAC 40 slipped 0.98 per cent to 3,862.19 points, while in Frankfurt the DAX slipped 1.23 per cent and dropped back below the 7,000-barrier, ending at 6,970.73 points.
The London Stock Exchange was closed for a public holiday.
On the currency market the euro rose to $1.3148 in late afternoon trade from 1.3116 late on Friday.
The dollar was stable at 82.82 yen against 82.90 on Friday.
Elsewhere in Europe, Madrid’s IBEX-35 stock index lost 2.06 percent, Milan fell 1.25 per cent, Lisbon lost 1.16 per cent, Brussels dropped 1.09 per cent, Swiss stocks slid 0.47 per cent and Amsterdam dipped 0.10 per cent.
Investors were digesting a decision Saturday by China’s central bank to raise interest rates for the second time in less than three months as part of a campaign to curb borrowing, rein in property prices and tame inflation.
The People’s Bank of China said in a brief one-line statement that it will raise the one-year lending and deposit rates by 0.25 points each. The move takes the rates to 5.81 per cent and 2.75 per cent respectively from Sunday.
In mid-October, policymakers raised rates for the first time in nearly three years to try to slow a flood of liquidity that has been fanning inflation and driving up property prices.
The Central Bank action prompted concern for the pace of Chinese economic growth, which is seen as critical to the global economy.
But economist Francois Duhen of CM-CIC Securities commented: “This hike is not a surprise to us.”
He said six previous increases in obligatory reserve levels for Chinese banks had not resulted in “the desired reduction in lending, nor in a drop in real estate speculation nor in a cooling of inflation.”
In Paris bank shares came under pressure, with Societe Generale down 1.89 per cent and Credit Agricole 1.98 per cent.
On the Frankfurt market it was the automobile sector that led decliners, hit not only by the Chinese rate hike but by a decision by the Chinese capital to cut new car registrations by two-thirds to try to ease Beijing’s massive traffic jams.
Daimler dropped 4.62 per cent, Volkswagen 4.76 per cent and BMW 6.39 per cent.
German automakers in particular have looked to China’s rapidly growing market for future expansion.
Beijing sales account for seven per cent of Chinese auto sales.
“The fear of the market is that this initiative of Beijing is copied by other Chinese mega-cities which are confronted by the same traffic problems,” NordLB analyst Frank Schwope said.
The Chinese rate move also hit stocks on Wall Street. The Dow Jones Industrial Average had slid by 0.28 per cent at midday to 11,541.10 points.
“The unexpected rate hike by the People’s Bank of China over the holiday weekend may temper equities heading into the new year,” said Moody’s Analytics’ Michael Bratus.
The broader S&P 500 index was down 0.18 percent to 1,254.57 points and the tech-rich NASDAQ slid 0.49 percent to 2,652.57 points.
In London yesterday, the euro changed hands at $1.3148 against $1.3116 late in New York on Friday, at 108.89 yen (108.74), £0.8526 (0.8494) and 1.2650 Swiss francs (1.2616).