Stocks, Metals Decline After China Curbs Lending; Yen Weakens

Bloomberg | January 7, 2010 | 09:33 EST

Stocks fell around the world, with the MSCI Emerging Markets Index falling the most in three weeks, and metals dropped as China moved to curb lending. The yen slid after Japan’s finance minister said he would welcome a weaker currency, while a rising dollar extended losses in commodities. The MSCI emerging markets gauge declined 0.8 percent at 9:32 a.m. in New York, led by China as the Shanghai Composite Index plunged 1.9 percent, the biggest decrease among major benchmark indexes tracked by Bloomberg. The Standard & Poor’s 500 Index lost 0.3 percent, retreating from its highest level since October 2008. Copper declined from a 16-month high and oil snapped its longest rally since 1996. The yen weakened against all of the 16 most-traded currencies, while the dollar climbed against 14 of 16.

Central bankers in China, the engine of the global economic recovery, sold three-month bills at a higher interest rate for the first time in 19 weeks after saying their 2010 focus is controlling record loan growth. The Federal Reserve said in the minutes of its latest meeting that the U.S. economic recovery might require additional stimulus measures to be sustained. “Growth will probably slow this year as tight credit will damp the demand side,” said Zhang Ling, who helps oversee $7.2 billion at ICBC Credit Suisse Asset Management Co. in Beijing. “That will dash investors’ hope of another year of fast growth.” The MSCI World Index of 23 developed nations’ stocks slipped 0.2 percent. European and Asian stocks declined from the highest levels in more than 15 months.    

S&P 500 Retreats

Producers of raw materials and health-care companies fell the most among 10 groups in the S&P 500, with Alcoa Inc. losing 3 percent and Johnson & Johnson down 0.5 percent. The biggest annual rally in six years in 2009 left the measure trading at more than 24 times its companies’ reported operating earnings, the highest level since 2002, according to Bloomberg data. Treasury two-year notes fell for the first time in four days as the number of Americans filing first-time claims for jobless benefits rose less than forecast last week. The difference between 2- and 10-year Treasury yields narrowed from near the most on record as initial jobless claims increased by 1,000 to 434,000, fewer than the 439,000 claims economists expected. The two-year yield rose three basis points to 1.03 percent, while the 10-year yield fell less than one basis point to 3.82 percent.

Recovering Economy

Economies are recovering from the first global recession since World War II. American job losses probably stopped in December for the first time since the slump began two years ago, according to the median of 74 economists surveyed by Bloomberg News before a Labor Department report tomorrow. The unemployment rate may have climbed to 10.1 percent from 10 percent. More stimulus “might become desirable at some point,” some Fed officials said at the central bank’s Dec. 15-16 meeting. “Structural headwinds lie ahead of us that could turn 2010 into a rollercoaster ride,” a team led by David Karsboel, chief economist at Saxo Bank A/S in Hellerup, Denmark, wrote in a report today. “One of the most influential potential triggers for global market turmoil in 2010 will be a sharp decline in economic activity in China, when the so-called investment-driven export model runs into a brick wall of fading Western demand.”

The Australian dollar appreciated against 10 of 16 currencies after the government said retail sales rose in November by the most in eight months, prompting speculation the nation’s central bank will raise interest rates for a fourth time. The Czech central bank may push up borrowing costs in the second half of this year, Vice-Governor Miroslav Singer told a newspaper.

Emerging Market Equities

Developing-nation stocks fell from their most expensive valuations since 2000, with the MSCI emerging markets index trading at 24.4 times reported earnings yesterday, according to data compiled by Bloomberg. Poland’s WIG 20 Index dropped 1.7 percent after the government said it’s seeking to sell shares of copper producer KGHM Polska Miedz SA. In China, SAIC Motor Co., the country’s biggest carmaker, plunged 4.4 percent on prospects auto sales will slow this year. Industrial & Commercial Bank of China Ltd., the nation’s largest publicly traded lender, and China Citic Bank Corp. dropped more than 2 percent.

Commodities Drop

Copper for delivery in three months fell 0.4 percent to $7,630 a ton on the London Metal Exchange. Aluminum, nickel and zinc also dropped. Gold for immediate delivery retreated 0.6 percent to $1,131.93 an ounce as the dollar strengthened. Corn declined 1 percent to $4.1775 a bushel in Chicago, partly on expectations that Argentina, the world’s second-biggest exporter of the grain, may increase output. In Japan, Finance Minister Naoto Kan said he would welcome a weaker yen as an 18 percent climb against the dollar in two years threatens exports. The yen declined most against the South Korean won, losing 0.9 percent, after Kan said in his first day in office that he would like to see the currency weaken “a bit more” as the country seeks to tackle deflation and the country’s deepest postwar recession.


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