China rate jitter, Ireland debt woes hit stocks

Investors gave stocks a wide berth on Wednesday on renewed worries China may hike interest rates this week and after top level meetings in Europe failed to produce a clear solution to tackle Ireland's debt crisis.

Dublin has so far resisted pressure to request aid, although euro zone ministers have agreed to send a joint European-IMF mission to Ireland that could prepare the way for a bailout to prevent its debt crisis spreading to other countries.

Asian stocks excluding Japan dropped to their lowest level in four weeks, while European bourses opened lower with the FTSEurofirst 300 index of top European shares .FTEU3 down 0.2 percent.

The rally in the dollar, meanwhile, briefly paused after two top Federal Reserve officials were reported by the Wall Street Journal as saying the central bank may need to go beyond its latest plan to pump $600 billion into the U.S. economy.

The MSCI Asia stock index excluding Japan .MIAPJ0000PUS fell 1.5 percent to its lowest level since October 20, on track to close lower for an eighth straight session.

Among the worst performers, Australian shares .AXJO slid 1.6 percent as BHP Billiton (BHP.AX) and Rio Tinto (RIO.AX) both suffered falls of more than 2 percent.

Investors worry that China, Australia's largest export market, is preparing more aggressive steps to tame inflation and thus risk slower growth.

China Inflation

Chinese Premier Wen Jiabao said his government was preparing steps to tame price rises, feeding into market expectations that China will intensify tightening policies. There is talk that it may do so as soon as Friday.

"China wants to send a message to everybody that this time they are serious in fighting inflation, reducing excess liquidity and controlling speculative inflows," said Danny Yan, who helps manage more than $400 million at Tai Fook Asset Management.

Hong Kong's Hang Seng index .HSI shed 2.2 percent, while Chinese shares .SSEC fell 1.9 percent. Several other markets in Asia were closed for holidays, including Singapore, Indonesia, Malaysia and India.

Japan's Nikkei average .N225, however, eked out a small gain as shares in some exporters, such as car makers, benefited from the yen's softness against the dollar.

The dollar hit a six-week high of 83.59 yen in New York, and was last at 83.44, while the euro, which fell as low as $1.3446 overnight, edged up to $1.3500.

Worries about further policy moves in China also knocked commodity prices lower. Shanghai copper and zinc futures fell by their daily limit, chasing losses of 5 to 8.5 percent in London in the previous session.

"We know it's coming, but we don't know when. The uncertainty is a risk-appetite killer, but like Rumsfeld once said, 'it's a known unknown'," a trader in Hong Kong said, referring to comments by former U.S. Defense Secretary Donald Rumsfeld.

Three-month copper on the London Metal Exchange fell 1.1 percent to $8,060 a tonne, down about 10 percent from a record high of $8,966 set on November 11.

Spot gold was a touch lower on the day at $1,335.00 an ounce, having shed 2 percent the previous day to a two-week low, while crude oil slipped 0.5 percent to $81.95 a barrel, still shaky after Tuesday's 3 percent fall.

U.S. Treasuries held on to most of the gains made on Tuesday, with the 10-year note yield flat at 2.84 percent, off a 3-1/2-month high near 3 percent set on Monday.

[Source: By Ian Chua, Reuters, Sydney, 17Nov10]

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