REFILE-MARKETS-GLOBAL-China worries, European banks, earnings pressure stocks; dollar, yen up

Wed Oct 23, 2013 11:05am EDT

* Spike in China's short-term rates underscores tightening
fears
    * Dollar selling pauses as investors focus on Chinese rates
    * European Central Bank sets out tougher bank health tests
    * Wall St slips after four-day record on S&P 500;
Caterpillar weighs

    By Angela Moon
    NEW YORK, Oct 23 (Reuters) - Global equity markets fell on
Wednesday on mixed corporate results and concerns that new
scrutiny of euro zone banks could prove costly for its weaker
members, while the U.S. dollar and the Japanese yen held small
gains sparked by worries over Chinese monetary policy.
    The dollar edged up from near two-year lows against the euro
and an 8-1/2-month trough versus a major currency basket as
investors sought the greenback's safety following a spike in
China's short-term money market interest rates. 
    The yen was also in demand, with the dollar down 0.7 percent
at 97.40 yen and the euro 0.9 percent weaker at 134.09
yen.  
    Wall Street opened lower following four straight days of
record highs for the S&P 500. Mixed results from major U.S.
companies, including equipment maker Caterpillar Inc, which sank
nearly 6 percent in early trade, pulled stocks lower.
 
    "With Caterpillar cutting its outlook for the year and
concerns over China slowing against a backdrop of a market at a
record, some people just decided to ring the cash register and
take some profits," said  Eric Kuby, chief investment officer at
North Star Investment Management Corp in Chicago.
    He said the selling was "orderly" and indicates more a pause
than nervousness on the part of investors.
    European stocks recorded their sharpest falls in two weeks
as the details of a new, year-long test of euro zone lenders by
the bloc's central bank amplified anxiety about China and the
recent rapid run-up in world equity markets.
    The ECB wants to unearth any risks hidden in the banking
system before supervision comes under its roof as part of a
three-pronged "banking union" plan designed to avoid a repeat of
the euro zone debt crisis. 
    The pan-European FTSEurofirst 300 fell 0.7 as
Italian, Spanish and Portuguese markets, as well as banking
stocks, all dropped.
    Jan von Gerich, chief developed market strategist for
Nordea, said that if done properly, the review should help the
euro zone, but in the short term it could revive questions about
its weaker members if public money is needed for bank repairs.
    "The most interesting part will be what it says about Italy.
Its banks haven't gone through the same kind of scrutiny as the
ones in Spain or those in Greece, Ireland or Portugal - the
smaller countries, too, whether Slovenia will need a bailout for
example," he added.
    MSCI's world equity index, which tracks
shares in 45 countries, fell 0.7 percent. 
    On Wall Street, the Dow Jones industrial average was
down 86.51 points, or 0.56 percent, at 15,381.15. The Standard &
Poor's 500 Index was down 13.43 points, or 0.77 percent,
at 1,741.24. The Nasdaq Composite Index was down 39.68
points, or 1.01 percent, at 3,889.88. 
    
    CHINESE WHISPERS
    Concerns about soft U.S. jobs data for September, which
appeared to rule out a cut in U.S monetary stimulus before next
year and caused a plunge in the dollar, took a back seat as
Chinese money market rates climbed to levels not seen since
July. The People's Bank of China failed for a second day to
inject cash.
    Rising liquidity needs for Chinese corporate tax payment
deadlines and worries about bad banking debt appeared partly
responsible for the jump in short-term rates, analysts said.
    The rate spike was short-lived but caused a market panic
nevertheless, causing a scramble for safe-haven dollars and yen.
    "The weight of a weak U.S. non-farm (payroll data released
on Tuesday) is surpassed by rising risk aversion on concerns
over China's money market. Profit-taking takes hold," said
Camilla Sutton, chief currency strategist at Scotiabank in
Toronto.
    U.S. Treasuries yields fell to the lowest in three months
after Tuesday's weaker-than-expected jobs data reinforced
expectations that the Federal Reserve is unlikely to reduce the
size of its bond purchase program in the near term.
    Buying overnight helped yields fall further, with no large
data releases scheduled on Wednesday. Benchmark 10-year
Treasuries were  up 8/32, the yield at 2.4836
percent. 
    In commodities trading, U.S. crude fell below $97 a barrel
to its lowest since July, outpacing a smaller drop in Brent
futures, pressured by ample supplies and expectations of a
further inventory buildup in the United States, the world's top
consumer.
    U.S. crude fell $1.88 to $96.42 after earlier
reaching $96.32, its lowest since July 1. Brent crude 
fell $1.39 to $108.58 a barrel after hitting a session high of
$110.06.
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.