GLOBAL MARKETS-China worries boost demand for safe-haven currencies; stocks pressured by Europe

Wed Oct 23, 2013 12:56pm EDT

* China short-term rates spike boosts demand for dollar,
yen, Swiss franc
    * Wall Street down after four-day streak of records on S&P
500
    * Spanish, Italian banks worst hit by ECB plans for tougher
bank stress tests


    By Angela Moon
    NEW YORK, Oct 23 (Reuters) - The safe-haven dollar, yen and
Swiss franc rose on Wednesday on worries over Chinese monetary
policy, while global equity markets ended their recent winning
streak as weak U.S. corporate results and concerns over tougher
stress tests on euro zone banks prompted profit-taking.
    On Wall Street, the S&P 500 was on track to snap a four-day
streak of record highs as shares of Caterpillar and a number of
chipmakers tumbled on weaker-than-expected results. 
    The earnings of two Dow components underlined how the
corporate reporting season has been mixed, with investors
concerned about revenue growth and outlooks. 
    Caterpillar Inc was one of the biggest decliners,
slumping 5.9 percent to $83.94 after the heavy-equipment
machinery maker cut its full-year outlook. On the upside, Boeing
Co surged 5.7 percent to $129.45 after the planemaker
raised its full-year forecast.  
    "We've seen a mixed bag as far as earnings go, and
comparisons will only get harder next quarter," said Jerry
Villella, investment specialist for JP Morgan Private Bank in
Dallas. "You have to be more careful about where you invest. We
have more modest expectations going forward."
    European shares snapped a nine-day winning streak, hit by
plans for a tougher stress test for euro zone banks, as well as
by a crop of weak earnings numbers and forecast downgrades in
other sectors. The FTSEurofirst 300 index lost
0.6 percent.
    The STOXX Europe 600 Banks index dropped 2.2 percent,
suffering its worst day in two months after the European
Central Bank said it would review the quality of a
broader-than-expected range of assets held by top regional
lenders next year, which may result in them having to raise
fresh capital. 
    The Spanish IBEX and Italian FTSE MIB 
suffered worst sessions since August.
    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 80.57 points, or 0.52 percent, at 15,387.09. The Standard &
Poor's 500 Index was down 10.63 points, or 0.61 percent,
at 1,744.04. The Nasdaq Composite Index was down 28.87
points, or 0.73 percent, at 3,900.69. 
    
    CHINA CONCERNS
    China's primary short-term money rates rose on
Wednesday in a delayed reaction to signals from regulators that
they are considering tightening liquidity to tamp rising
inflationary pressure.
    A policy adviser to the People's Bank of China told Reuters
on Tuesday that the authority may tighten cash conditions in the
financial system to address inflation risks.
    The benchmark seven-day repo contract, which has
been on a steady slide since Oct. 9, rose steeply in the morning
session with quotes as high as 4.55 percent, up more than a full
percentage point from the previous final closing quote.
 
    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. 
    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 currencies.
    "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.
     The yen was in demand, pushing the dollar down 0.8 percent
at 97.31 yen and the euro 0.9 percent weaker at 134.06
yen. The Swiss franc rose as the dollar and euro both
slipped 0.3 percent to 0.8924 and 1.2296 francs
, respectively.
    U.S. Treasuries yields fell to the lowest in three months.
with the benchmark 10-year notes up 9/32 in price to
yield 2.4799 percent, the lowest since July 23 and down from
2.60 before the jobs data was released on Tuesday.
    In commodities trading, U.S. crude fell toward $96 a barrel
to its lowest since July, outpacing a smaller drop in Brent
futures, pressured by ample supplies and a further inventory
build-up in the United States, the world's top consumer.
    U.S. crude fell $1.40 to $96.90 and earlier reached
$96.16, its lowest since July 1. Brent crude fell $1.65
to $108.32 a barrel after hitting a session high of $110.06.