Dollar gains, world stocks slip after China’s rate move

By Herbert Lash and Dominic Lau

NEW YORK/LONDON (BestGrowthStock) – World stocks and commodity prices fell on Tuesday after China, the engine of growth in a still weak global recovery, raised interest rates for the first time since 2007 to rein in its booming economy.

The dollar gained and Wall Street fell more than 1 percent on China’s unexpected 25 basis point rate rise a day after U.S. Treasury Secretary Timothy Geithner vowed Washington would not devalue the dollar for its own advantage.

Oil fell, copper tumbled and gold extended losses of more than 2 percent, while the dollar rose against the euro, the Japanese yen and a basket of major currencies following the rate shift by the People’s Bank of China.

The PBOC said it would raise its benchmark one-year lending and deposit rate on Wednesday in a tightening that analysts said may suggest Beijing and Washington are working together to ease rising currency tensions.

“It certainly leads to speculation that the United States and China are in some sort of a deal which will perhaps see the U.S. taking a more gradualist approach to quantitative easing,” said Simon Derrick, head of currency research at Bank of New York Mellon.

The Australian dollar and other commodity-linked currencies fell sharply after China’s move, sparking a sell-off in perceived riskier currencies.

The dollar was up against a basket of major currencies, with the U.S. Dollar Index (.DXY: ) up 1.26 percent at 77.904.

The euro extended losses against the dollar on the news, but the Australian dollar was one of the main losers, with investors concerned the move could dampen growth in China, hitting commodity-linked economies in particular.

“The gut reaction of the market is to sell commodity block and emerging market currencies,” said Kit Juckes, currency strategist at Societe Generale.

Wall Street fell as disappointed investors worried about the strength of U.S. corporate earnings after results and outlooks from consumer and technology titans Apple and IBM were worse than expected.

In early morning trade, the Dow Jones industrial average(.DJI: ) was down 98.16 points, or 0.88 percent, at 11,045.53. The Standard & Poor’s 500 Index (.SPX: ) was down 9.50 points, or 0.80 percent, at 1,175.21. The Nasdaq Composite Index (.IXIC: ) was down 22.80 points, or 0.92 percent, at 2,457.86.

Apple’s (AAPL.O: ) shares, which hit a lifetime high on Monday, fell more than 2.8 percent and tripped up the Nasdaq.

International Business Machines Corp (IBM.N: ) said it won fewer technology services deals than expected in the third quarter, sending its shares 3 percent lower [ID:nN18152165].

The basic materials sector (.GSPM: ), closely linked to consumption in China, was the worst performer in the S&P 500 and pushed European shares edged lower.

Oil fell on the dollar’s strength. U.S. light sweet crude oil was off $1.73 to $81.35 a barrel.

Spot gold prices fell $26.05 to $1,342.20 an ounce.

U.S. government debt prices slipped and German Bund futures fell to their lowest in almost a month after data showed a stronger-than-expected reading on U.S. housing starts in September, which rose to a five-month high.

In the United States, developers broke ground in September at a faster rate, with U.S. housing starts rising 0.3 percent to an annualized rate of 610,000 units from an upwardly revised 608,000 annualized pace in August, the Commerce Department said. Analysts had predicted a decline to a 580,000 unit rate.

The benchmark 10-year U.S. Treasury note was down 4/32 in price to yield 2.53 percent.

U.S. government debt prices slipped, as solid bank earnings reduced worries over renewed foreclosure problems in the sector, curbing safe-haven demand for bonds.

Overnight in Asia, Japan’s Nikkei share average closed 0.4 percent higher (.N225: ), extending a gain since September to 6.9 percent, but MSCI’s index of Asia Pacific stocks outside Japan (.MIAPJ0000PUS: ) slipped 0.3 percent.

The China rate hike move came after Asian markets had closed. The Japanese yen was down 0.75 percent against the dollar to 81.85 from a previous session close of 81.230.

(Reporting by Rodrigo Campos, Richard Leong in New York; Brian Gorman, Emelia Sithole-Matarise, Zaida Espana, Isabel Coles, Marie-Louise Gumuchian and Jan Harvey; Writing by Herbert Lash; Editing by Padraic Cassidy)

Dollar gains, world stocks slip after China’s rate move