“(Reuters) – Concerns over tighter Chinese monetary policy hit global shares still high on hopes of extended U.S. stimulus on Wednesday, when the dollar tentatively steadied at an eight-month low after its latest slide.
European shares saw their biggest falls in two weeks as markets opened when fears of tighter policy in China were amplified by reports that some of its big banks were tripling write-offs on bad loans.
Asian markets saw widespread weakness as a variety of factors ranging from a strengthening yen in Japan and fading rate cut hopes in Australia added to the negativity.
“What has happened this morning is that we have the Chinese rate surge on the policy tightening fears,” said Alvin Tan, a strategist at Societe Generale in London.
“That has basically generated a broad correction in risk assets and in Europe that is continuing.”
Short-term Chinese money rates underscored investors’ concerns that regulators there are poised to tighten liquidity to quell growing inflationary pressures.
The benchmark seven-day repo contract, which had been steadily sliding since October 9, spiked in the morning session, a day after a policy adviser to the People’s Bank of China (PBOC) told Reuters it was weighing tightening measures.
Investors were also digesting the first firm details from the European Central Bank on it plans to check the health of euro zone banks over the next year.
The FTSEurofirst 300 .FTEU3 was down as much as 0.7 percent as trading gathered pace, with Italian, Spanish and Portuguese markets leading the way with respective falls of 1.4, 1.2 and 1.3 percent.
ECB BANK CHECK
The ECB’s new supervision role is the first leg of a three-pronged plan for a banking union in the euro zone and is designed to ensure there are no holes that could leave the bloc vulnerable.
Jan von Gerich, chief developed market strategist for Nordea, said that while if done properly it should help the euro zone, in the short term it could revive questions about its weaker members.
“The most interesting part will be what it says about Italy….”Twitter