* China raises bank reserve requirements, commods fall
* Europe shares down 0.8 percent; miners, banks hit
* Euro rises vs dollar on Irish debt crisis optimism
By Michel Rose
London, Nov 19 (Reuters) - World stocks inched lower and
commodities fell on Friday as China raised banks' reserve
requirements, but a tense market remained focused on hopes of an
Irish bailout and its broader implications for euro zone debt.
European shares <.FTSE3> fell, with mining stocks sagging on
expectations the order for Chinese lenders to lock up more money
with the central bank would cut demand from the world's growth
engine, while European banks <.SX7P> were down on euro zone
worries.
The euro <EUR=> recouped losses against the dollar, rising
0.6 percent to move further away from a seven-week low hit
earlier this week as traders anticipated an Irish rescue deal
emerging from a visit to Dublin by an EU-IMF mission to assess
the health of the country's banks.
MSCI's all-country world stock index <.MIWD00000PUS> fell
around 0.1 percent and Wall Street looked set for a weaker
start.
China said it would raise banks' reserve requirements by 50
basis points, effective Nov. 29 and its second hike in two
weeks.
The country is one of the world's largest metals and
commodity consumers, and stocks such as BHP Billiton <BLT.L> and
Rio Tinto <RIO.L> were under pressure, losing between 1.75
percent and 2 percent, while South African shares <.JTOPI> fell
0.5 percent.
Emerging markets <.MSCIEF> shrugged off Chinese demand
concerns, however, rising about 0.2 percent.
Speculation had grown since an official Chinese newspaper
suggested that Friday could be a convenient time to raise rates
before banks settle accumulated interest on the 20th day of the
month, and the move had been broadly priced in already.
"China has stepped up the pace of tightening but the
reaction has been fairly muted because the market was expecting
a move," said Manik Narain, analyst at UBS in London.
"No one is really bearish because of China. People are
defensive because of the euro zone issues and Ireland, that's
the dominant theme at the moment."
Ireland is in discussions over an aid package potentially
worth tens of billions of euros from the European Union, but
with Dublin not yet at the point of requesting a loan, talks
were expected to run into next week [].
At 1215 GMT the FTSEurofirst 300 <> index of top
European shares was down 0.85 percent at 1,098.25 points, after
rising 1.4 percent on Thursday.
For the week, the European benchmark is set to post a small
decline but is up more than 70 percent from its lifetime low of
March 2009, with several major economies having emerged from
recession, helped by government and central bank stimulus.
Optimism on a deal for Ireland helped the euro to edge up on
Friday, with the dollar falling, boosting metals prices.
"I think markets will react more if the IMF comes away from
Ireland empty-handed. That could cause a ripple effect on other
(euro zone) credits but people are not expecting an
announcement before the weekend," UBS's Narain added.
U.S. VS CHINA
Federal Reserve Chairman Ben Bernanke defended the U.S.
central bank's controversial bond-buying programme, saying a
vigorous U.S. recovery is central to global economic health.
Large emerging powers like China are in conflict with the
United States, with each seen by the other as artificially
weakening its currency to boost exports.
Bernanke kept up the battle on Friday, saying emerging
countries which kept down their currencies were creating an
additional burden. []
The Fed's second round of monetary stimulus has also raised
concerns about overheating in fast-growing emerging countries,
which fear the emergence of asset bubbles and inflation.
Chinese Premier Wen Jiabao had emphasized that his
government was preparing steps to tame price rises, with
inflation running at a 25-month high. []
Raising interest rates or taking measures to cap domestic
prices could constrain commodity demand or drain liquidity from
markets, but analysts said such a move was necessary for
sustainable long-term growth.
"China is not going to slam on its brakes, it's
progressively tightening to limit inflation pressures and I
don't think it will have a significant impact on world growth,
though it could impact markets in the short term as China is
such a big consumer of commodities," said Philip Poole, head of
global and macro strategy at HSBC Asset Management.
Foodstuffs are likely to be hardest hit, highlighting
Beijing's focus on consumer inflation.
Corn, cotton and zinc -- favoured by speculators in recent
months -- saw some of the biggest falls with U.S. cotton <CTc1>
down around 3 percent and 1 percent-plus losses in corn and
zinc.
(Additional reporting by Sujata Rao; Editing by John
Stonestreet)
