NEW YORK: World stocks and commodity prices fell sharply on Tuesday, Oct 19 after China, the engine of growth in an anemic global recovery, raised interest rates for the first time since 2007 to curb its booming economy.
Wall Street also was hit by fears that U.S. banks might be on the hook for billions of dollars in souring mortgage bonds, driving stocks to post their biggest loss in two months.
The dollar rallied broadly on China's unexpected 25-basis-point rate increase, a move that could mark the start of a more aggressive phase of monetary tightening in the world's fastest-growing major economy.
Crude oil prices slid more than 4 percent, the biggest single-day percentage decline since February, while copper tumbled from 27-month highs and gold shed as much as 2.7 percent, set for its largest one-day drop since early July.
The People's Bank of China said it would lift its benchmark one-year lending and deposit rate, effective on Wednesday, in a move analysts said may suggest Beijing and Washington are working together to ease rising currency tensions.
Traders cut their exposure to risk by taking refuge in U.S. government debt and selling the euro and commodity-sensitive Australian dollar.
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 China's quarter-percentage point rise in interest rates could dampen Chinese and global growth while slowing China's voracious demand for commodities.
"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 up 1.66 percent at 78.206.
Trading in Tokyo was poised to open lower, with the December futures contract that trades in Chicago for the Nikkei 225 down 50 points at 9,495.
Wall Street fell further in late trade on news that Bank of America and potentially others may be forced to take back billions of dollars in mortgages that should not have been bundled into bonds.
"It's reminding investors of what was the main impetus for the horrific sell-off we had a few years ago," said Eric Kuby, chief investment officer at North Star Investment Management in Chicago. "If you were recently struck by lightning, you are a little skittish when there is a thunderstorm."
Bank of America shares fell 4.4 percent to $11.80 after a Bloomberg report, citing people familiar with the matter, said investors PIMCO and BlackRock as well as the New York Federal Reserve Bank were seeking to force the lender to repurchase $47 billion in mortgage bonds.
The Dow Jones industrial average slid 165.07 points, or 1.48 percent, to end at 10,978.62. The Standard & Poor's 500 Index dropped 18.81 points, or 1.59 percent, to 1,165.90. The Nasdaq Composite Index lost 43.71 points, or 1.76 percent, to close at 2,436.95.
The MSCI all-country world equity index fell 1.5 percent.
GOLD SLIDES, OIL DROPS
Oil fell on the dollar's strength and fears that demand will slow from China.
U.S. crude for November delivery fell $3.59, or 4.32 percent, to settle at $79.49 per barrel, the biggest one-day percentage dive since Feb. 4.
In London, ICE Brent December crude fell $3.27, or 3.88 percent, to settle at $81.10 a barrel.
U.S. gold futures for December delivery sank $36.10, or 2.6 percent, to settle at $1,336 an ounce.
U.S. Treasuries prices rallied as stock market losses spurred demand for safe-haven U.S. government debt and several Federal Reserve officials said easier monetary policy was needed to support the economy.
Several Fed officials said the Fed needed to implement a more accommodative policy to fulfill its mandate to pursue the highest level of employment consistent with price stability.
"The stock market was down and that gave Treasuries a bid," said John Spinello, chief fixed-income technical strategist at Jefferies & Co. in New York. "And Fed officials are talking more and more about adding reserves to the system."
The benchmark 10-year U.S. Treasury note was up 10/32 in price to yield 2.48 percent. The 2-year U.S. Treasury note was break-even, yielding 0.36 percent.
Overnight in Asia, Japan's Nikkei share average closed 0.4 percent higher, extending a gain since September to 6.9 percent, but MSCI's index of Asia Pacific stocks outside Japan slipped 0.6 percent.
China's rate-hike move came after Asian markets had closed. The dollar was up 0.42 percent at 81.57 against the yen; the euro was down 1.52 percent at $1.3733. - Reuters
Wall Street also was hit by fears that U.S. banks might be on the hook for billions of dollars in souring mortgage bonds, driving stocks to post their biggest loss in two months.
The dollar rallied broadly on China's unexpected 25-basis-point rate increase, a move that could mark the start of a more aggressive phase of monetary tightening in the world's fastest-growing major economy.
Crude oil prices slid more than 4 percent, the biggest single-day percentage decline since February, while copper tumbled from 27-month highs and gold shed as much as 2.7 percent, set for its largest one-day drop since early July.
The People's Bank of China said it would lift its benchmark one-year lending and deposit rate, effective on Wednesday, in a move analysts said may suggest Beijing and Washington are working together to ease rising currency tensions.
Traders cut their exposure to risk by taking refuge in U.S. government debt and selling the euro and commodity-sensitive Australian dollar.
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 China's quarter-percentage point rise in interest rates could dampen Chinese and global growth while slowing China's voracious demand for commodities.
"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 up 1.66 percent at 78.206.
Trading in Tokyo was poised to open lower, with the December futures contract that trades in Chicago for the Nikkei 225 down 50 points at 9,495.
Wall Street fell further in late trade on news that Bank of America and potentially others may be forced to take back billions of dollars in mortgages that should not have been bundled into bonds.
"It's reminding investors of what was the main impetus for the horrific sell-off we had a few years ago," said Eric Kuby, chief investment officer at North Star Investment Management in Chicago. "If you were recently struck by lightning, you are a little skittish when there is a thunderstorm."
Bank of America shares fell 4.4 percent to $11.80 after a Bloomberg report, citing people familiar with the matter, said investors PIMCO and BlackRock as well as the New York Federal Reserve Bank were seeking to force the lender to repurchase $47 billion in mortgage bonds.
The Dow Jones industrial average slid 165.07 points, or 1.48 percent, to end at 10,978.62. The Standard & Poor's 500 Index dropped 18.81 points, or 1.59 percent, to 1,165.90. The Nasdaq Composite Index lost 43.71 points, or 1.76 percent, to close at 2,436.95.
The MSCI all-country world equity index fell 1.5 percent.
GOLD SLIDES, OIL DROPS
Oil fell on the dollar's strength and fears that demand will slow from China.
U.S. crude for November delivery fell $3.59, or 4.32 percent, to settle at $79.49 per barrel, the biggest one-day percentage dive since Feb. 4.
In London, ICE Brent December crude fell $3.27, or 3.88 percent, to settle at $81.10 a barrel.
U.S. gold futures for December delivery sank $36.10, or 2.6 percent, to settle at $1,336 an ounce.
U.S. Treasuries prices rallied as stock market losses spurred demand for safe-haven U.S. government debt and several Federal Reserve officials said easier monetary policy was needed to support the economy.
Several Fed officials said the Fed needed to implement a more accommodative policy to fulfill its mandate to pursue the highest level of employment consistent with price stability.
"The stock market was down and that gave Treasuries a bid," said John Spinello, chief fixed-income technical strategist at Jefferies & Co. in New York. "And Fed officials are talking more and more about adding reserves to the system."
The benchmark 10-year U.S. Treasury note was up 10/32 in price to yield 2.48 percent. The 2-year U.S. Treasury note was break-even, yielding 0.36 percent.
Overnight in Asia, Japan's Nikkei share average closed 0.4 percent higher, extending a gain since September to 6.9 percent, but MSCI's index of Asia Pacific stocks outside Japan slipped 0.6 percent.
China's rate-hike move came after Asian markets had closed. The dollar was up 0.42 percent at 81.57 against the yen; the euro was down 1.52 percent at $1.3733. - Reuters
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