China voices confidence in Europe after Italy downgrade

BEIJING Tue Sep 20, 2011 4:38am EDT

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BEIJING (Reuters) - China reaffirmed its confidence in the euro and the European economy on Tuesday after Standard & Poor's cut Italy's sovereign credit rating.

Chinese Foreign Ministry spokesperson Hong Lei said at a routine news conference that China will continue to view Europe as an important investment market.

"China has always had confidence in the European economy and the euro zone and has supported the measures taken by the IMF and euro zone countries," Hong said.

"We believe that Europe has the ability and wisdom to overcome its current difficulties, to leave the crisis behind, and we also hope that the Europe ensures the safety of Chinese investments there," he added, repeating China's official stance.

Since euro-zone debt worries first shook markets last year, China has at regular intervals said that it still has confidence in the single-currency region and pledged to buy debt issued by some of its troubled member states.

China's interest in a smooth resolution to the European debt crisis is clear enough. Of its $2.85 trillion in foreign exchange reserves, about 25 percent are estimated to be invested in euro-denominated assets.

Ratings agency Standard & Poor's cut Italy's sovereign credit rating by one notch, saying the country's economic growth prospects were getting weaker and planned reforms by the government would not help much.

Sources told Reuters that Bank of China, a big market-maker in China's onshore foreign exchange market, has stopped foreign exchange forwards and swaps trading with several European banks due to the unfolding debt crisis in Europe.

Hong did not comment directly on whether China would agree with Brazil to set up billion-dollar funds to help Europe, but he added that China would work with other BRICS members, namely Brazil, Russia, India and South Africa, to promote global economic balance and growth.

Brazil will propose that it and other large emerging market countries make billions of dollars in new funds available to the International Monetary Fund as a way to help ease the crisis in the euro zone, an official said on Monday.

(Reporting by Ben Blanchard and Sabrina Mao; Editing by Ken Wills)

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