GLOBAL MARKETS-Dollar gains, stocks slip on China rate-hike mov

* China’s rate hike takes shine off global risk appetite
* Dollar gains, commodities slip after China’s rate move
* Stocks slide, hurt by China, poor Apple and IBM results
(Adds close of European markets)

By Herbert Lash

NEW YORK, Oct 19 (BestGrowthStock) – World stocks and commodity
prices fell on Tuesday after China, the engine of growth in an
anemic global recovery, raised interest rates for the first
time since 2007 to rein in its booming economy.

The dollar gained and Wall Street slumped on China’s
unexpected 25-basis-point rate increase a day after U.S
Treasury Secretary Timothy Geithner vowed Washington would not
devalue the currency for its own advantage. For details see:
[ID:nTOE69I048]

Oil prices fell, copper slid and gold was poised for its
largest one-day drop since early July, while the dollar rose
against the euro, the Japanese yen and a basket of major
currencies following the rate hike by the People’s Bank of
China.

The central bank of China said it would raise its benchmark
one-year lending and deposit rate, effective on Wednesday, in a
tightening that analysts said may suggest Beijing and
Washington are working together to ease rising currency
tensions. The announcement from China’s central bank was made
on Oct. 19, which is remembered on Wall Street as the
anniversary of the 1987 stock market crash.

Traders cut their exposure to risk by taking refuge in the
dollar and selling the euro and commodity-sensitive Australian
dollar. [ID:nN19134544]

The Australian dollar, which last week rose above parity
with the U.S. currency for the first time since 1983, was hit
hardest, slipping 1.5 percent. The euro and sterling also fell
sharply.

Investors feared a quarter-percentage point rise in China’s
one-year lending rate could dampen Chinese and global growth
while slowing China’s voracious demand for commodities, many of
which come from Australia. [ID:nBJI002412]

“China’s rate increase instantaneously pushed people to
take risk off the table,” said Boris Schlossberg, director of
research at GFT Forex.

China “is trying to clamp down on growth and that’s going
to reflect badly on Australia, on Germany, on much of the world
economy as it readjusts to the idea that Chinese growth may not
be as torrid as expected,” Schlossberg said.

The dollar was up against a basket of major currencies,
with the U.S. Dollar Index (.DXY: ) up 1.26 percent at 77.903.

LIQUIDITY ‘TUG OF WAR’

European shares and 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 failed to meet expectations.

The MSCI all-country world equity index (.MIWD00000PUS: )
fell 1.1 percent. The pan-European FTSEurofirst 300 (.FTEU3: )
index of top shares slipped 0.5 percent to end at 1,082.96.

At 12:50 p.m., the Dow Jones industrial average (.DJI: ) was
down 107.40 points, or 0.96 percent, at 11,036.29. The Standard
& Poor’s 500 Index (.SPX: ) was down 10.32 points, or 0.87
percent, at 1,174.39. The Nasdaq Composite Index (.IXIC: ) was
down 24.39 points, or 0.98 percent, at 2,456.27.

China’s interest-rate decision unsettled investors, said
Philippe Gijsels, head of research at BNP Paribas Fortis Global
Markets in Brussels. Investors had become accustomed to
widespread expectations of further U.S. monetary expansions,

“It is now a tug of war between China taking liquidity out
of the market and the Federal Reserve putting liquidity back in
possibly through quantitative easing,” he said. “It is
difficult to predict whether this is the start of a market
reversal.”

Apple’s (AAPL.O: ) shares, which hit a lifetime high on
Monday, fell 2 percent to $311.70 and tripped up the Nasdaq.
[ID:nN18288374]

International Business Machines Corp (IBM.N: ) said it won
fewer technology services deals than expected in the third
quarter, sending its shares down 3.2 percent to $138.23.[ID:nN18152165].

GOLD PLUMMETS, OIL DROPS

The basic materials sector (.GSPM: ), closely linked to
consumption in China, was the worst performer in the S&P 500
and helped push European shares edged lower. [ID:nLDE69I1CS]

Oil fell on the dollar’s strength. U.S. light sweet crude
oil (CLc1: ) was off $2.30 to $80.78 a barrel.

Spot gold prices (XAU=: ) lost $24.55 to $1,343.70 an ounce.

U.S. government debt prices were little changed as several
Federal Reserve officials expressed the need for more policy
easing, which offset solid bank results and less grim housing
data. [ID:nN19130537]

Traders interpreted remarks from several senior Fed
officials as reassurance that the U.S. central bank will
shortly engage in a second round of asset purchases known as
quantitative easing, dubbed “QE2.”

The benchmark 10-year U.S. Treasury note (US10YT=RR: ) was up
3/32 in price to yield 2.50 percent. The 2-year U.S. Treasury
note (US2YT=RR: ) was break-even, yielding 0.37 percent.

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 dollar (JPY=: ) was up 0.42 percent at 81.57 against
the yen.
(Reporting by Steven C. Johnson, Richard Leong in New York;
Joanne Frearson, Emelia Sithole-Matarise, Zaida Espana, Isabel
Coles, Marie-Louise Gumuchian and Jan Harvey; Writing by
Herbert Lash; Editing by Jan Paschal)

GLOBAL MARKETS-Dollar gains, stocks slip on China rate-hike mov