Asia shares fall after China bank curbs money flow

Asian shares fell Monday as investors digested China’s latest move to curb the flood of money sloshing around its economy and awaited a meeting later in the week between the U.S. and Chinese presidents.

Oil prices slipped to near $91 a barrel amid prospects for a weaker demand for crude. In currencies, the dollar was up against the yen, while the euro slipped against the greenback ahead of a debt-crisis meeting among European finance ministers.

Asian shares fell in a delayed reaction to China’s announcement after markets closed Friday that it was raising reserve requirements for banks. China ordered state-owned banks to set aside an additional 0.5 percent of deposits as reserves, effective Jan. 20. It was the seventh time in a year that the reserve rate was hiked.

Japan’s Nikkei 225 stock average dropped 0.1 percent to 10,491.35 and South Korea’s Kospi was 0.1 percent lower at 2,106.06.

Hong Kong’s Hang Seng index slipped 0.3 percent to 24,216.66, the Shanghai Composite index lost 2.1 percent to 2,732.76 and Australia’s S&P/ASX 200 fell 0.9 percent to 4,759.50.

Benchmarks in New Zealand, Singapore and Taiwan also retreated.

China’s central bank uses increases in bank reserves to help reduce the amount of cash circulating in the economy. A frenzy of lending over the past two years has helped China rebound quickly from the global crisis. But, combined with bad weather and rising global commodity prices, it has complicated efforts to cool inflation.

Markets also will be watching meetings between Chinese leader Hu Jintao and President Barack Obama in Washington this week for any signs of improvement in often testy U.S.-China relations. But analysts did not expect major breakthroughs.

“The big story this week is the visit by President Hu, and I suspect they will be all smiles and emphasize the need for cooperation — and then they’ll politely resist each other’s demands,” said David Cohen of Action Economics in Singapore.

The U.S. wants Beijing to move toward faster appreciation of its currency. The Chinese government intervenes in currency markets to hold down the value of the yuan against the dollar — by as much as 40 percent, according to U.S. manufacturers. That makes Chinese products cheaper for Americans while increasing the price of U.S. goods in China.

But Beijing says relaxing currency controls too abruptly would damage the Chinese financial system, hurt its exporters and cost jobs.

“I don’t think the market is holding its breath” expecting China to relent to U.S. pressure on the yuan, Cohen said.

On Wall Street Friday, the Dow Jones industrial average gained 55.48 points, or 0.5 percent, to 11,787.38. The broader Standard & Poor’s 500 index rose 9.48, or 0.7 percent, to 1,293.24. The Nasdaq rose 20.01, or 0.7 percent, to 2,755.30.

While U.S. financial markets will be closed Monday to observe the Martin Luther King Jr. Day holiday, a busy day in Europe was expected as finance ministers meet in Brussels to discuss possible new strategies for solving the debt crisis among countries using the euro common currency.

French Finance Minister Christine Lagarde said one possibility was to give Europe’s euro750 billion ($1 trillion) rescue fund the power to buy government bonds on the open market — or to expand the fund’s size. Most analysts say the current strategy to deal with the crisis has failed.

In currencies, the dollar rose to 82.90 yen from 82.80 yen late Friday. The euro fell to $1.3330 from $1.3385.

Benchmark oil for February delivery was down 25 cents at $91.29 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose 14 cents to settle at $91.54 a barrel on Friday.
Source: AP