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China rates worry, Europe’s stocks crawl back

London - World stocks struggled on Wednesday from concerns that China will raise interest rates further, hitting emerging markets, but Europe’s equity decline stopped as investors took a break from Irish debt woes.

Wall Street looked set to open higher, and European bourses reversed earlier losses, with the FTSEurofirst 300 index of top European shares up 0.3 percent, after losing more than 2.3 percent the day before.

Emerging equities were down more than 0.9 percent, with South African shares easing 0.3 percent and Russian stocks some 0.2 percent lower, as expectations of weaker Chinese demand weighed on commodity prices.

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.

‘Chinese rate hike prospects are one thing (affecting markets), there is also the prospect of tighter measures on inflows in Asia, especially Korea,’ said Gaelle Blanchard, emerging markets strategist at Societe Generale.

Chinese shares closed down 1.9 percent, sending wider Asian stocks to their lowest levels in four weeks and hitting other countries with exporters plugged on China’s growth such as Australia.

MSCI’s all-country world stock index was down 0.2 percent.

PERIPHERAL SPREADS WIDEN

Persistent worries still weighed on Europe’s bond market, however, and Bund futures rallied to session highs while peripheral yield spreads widened, after Austria said the next tranche of an EU-backed aid package to Greece would be delayed until January.

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.

The euro was a touch higher, trading at $1.3511, near a seven-week low hit on a lack of a clear solution to the Irish debt crisis, while sterling was still recovering from Tuesday’s steep decline against the dollar.

Some support was provided by a Wall Street Journal article reporting top Federal Reserve official as saying the central bank may need to go beyond its latest plan to pump $600 billion into the US economy.

‘Investors are looking at all this euro zone uncertainty and think discretion is the better part of valour,’ Simon Derrick, head of currency research at the Bank of New York Mellon.

‘They are of the view after Ireland, will it be Portugal? The euro is headed lower and thinning liquidity conditions ahead of the year end will exacerbate volatility.’

Three-month copper on the London Metal Exchange fell 0.7 percent to $8,095 a tonne, down about 10 percent from a record high of $8,966 set on Nov. 11.

Spot gold was a touch lower on the day at $1,337.00 an ounce, having shed 2 percent the previous day to a two-week low, while crude oil slipped 0.35 percent to $82.05 a barrel, still shaky after Tuesday’s 3 percent fall.