London: World stocks fell yesterday and Wall Street looked set for a poor start as investors digested early results from the US and European earnings seasons and reacted to a surprise monetary policy tightening in China.
The dollar rose on the China move with the Australian dollar the biggest loser given its trade links and the economy's regional exposure.
China's central bank said it was raising banks' reserve requirements by 0.5 percentage points, the first time it has adjusted requirements since it lowered the ratio in December 2008 as part of a loosening cycle.
It comes after signs that Chinese growth is again growing rapidly.
"This is a very pro-active measure to control inflation in China. Money growth rate is very fast and the output gap is closing," said Li-Gang Liu, head of China economics at ANZ Bank in Hong Kong.
MSCI's all country world stock index was down half a per cent and Europe's FTSEurofirst 300 lost 1.1 per cent.
Earnings season
Earlier, however, Japan's Nikkei hit a new 15-month closing high, buoyed by China reporting record imports of some commodities and stronger-than-expected exports.
Apart from China, earnings season was a key focus for many investors. US aluminium producer Alcoa Inc, the first Dow Jones industrial average component to announce results, reported earnings below Wall Street estimates after the closing bell on Monday.
Underlining the potential for a mixed picture, the world's fourth largest retailer, Tesco, smashed Christmas sales growth forecasts in its main British market.
Elsewhere, market worries about Greece, reeling from a huge debt burden and downgrade, were on display with widening spreads while an otherwise successful T-bill auction commanded less buying interest and higher yields than previously. Such auctions are usually dominated by domestic investors.
The dollar gained on China's move and had earlier been boosted by comments from Peng Junming, an official at China's $300 billion (Dh1,101 billion) sovereign wealth fund CIC, that the currency had hit bottom and had limited room to fall further, while the yen would continue to weaken.
The dollar was up 0.2 per cent against a basket of currencies and rose against the euro, but was a third of a per cent lower against the yen.
