(Repeats to additional subscribers)
* China lending moves begin, MSCI world index down
* US stocks' gain fizzles ahead of regulatory events
* S&P cuts Japan outlook on soaring debt
(Updates with markets' close, recasts lead with late-day
sell-off)
By Jennifer Ablan
NEW YORK, Jan 26 (Reuters) - U.S. stocks dropped in a
late-day swoon on Tuesday ahead of major political and
regulatory developments, while the dollar and yen climbed
against most of their major counterparts as China implemented a
clampdown on bank lending.
U.S. Treasury debt prices rose as stocks, having been up
for most of the session, drooped into the close. Bonds also
rose on China and President Barack Obama's call for a freeze on
federal spending on many domestic programs.
China's central bank ordered banks that need to raise their
reserve ratios to implement the change on Tuesday, banking
sources said ID:nSGE60P039. In recent weeks, China has moved to
cool bank lending to curb inflation and forestall asset
bubbles. "Since China has started its banking proposals ...
this has generally been seen as a concern," said Justin
Urquhart Stewart, director at Seven Investment Management.
The dollar and yen climbed against higher-yielding
currencies on speculation China, the world's growth engine,
will take further steps to cool its economy, discouraging
demand for higher-yielding assets.
For their part, U.S. equity gains fizzled late on Tuesday
as investors turned cautious before the Federal Reserve's
policy announcement and President Barack Obama's State of the
Union address on Wednesday. For details, see ID:nN25224485
The Fed's Open Market Committee began a two-day meeting on
Tuesday against the backdrop of a Senate debate over Chairman
Ben Bernanke's reconfirmation. The meeting is expected to yield
few policy shifts, with a Fed statement on the economy and
interest rates expected on Wednesday.
With news flowing on many fronts, world stocks as measured
by the MSCI world equity index fell 0.7 percent with their
emerging market component -- a sector particularly sensitive to
China -- down 2 percent. Emerging stocks, last year's star
performer with a nearly 75 percent gain, have lost more than
five percent so far this year.
Adding to China worries, Standard & Poor's cut its outlook
on Japan. The rating agency threatened to cut Japan's credit
rating unless it produced a credible plan to rein in soaring
debt and lift growth in an economy plagued by persistent
deflation.
Japan's Nikkei closed down 1.8 percent. That was before S&P
cut its outlook.
TRAVELERS, APPLE HELP STOCKS
U.S. equities slipped on investor nervousness over
political and regulatory developments. Reuters reported that
former Federal Reserve Chairman Paul Volcker is tentatively
scheduled to testify next week on the latest White House bank
regulation proposals to the U.S. Senate Banking Committee.
Investors and analysts said that helped to weigh on
stocks.
The Dow Jones industrial average was down 2.57 points, or
0.03 percent, at 10,194.29, while the Standard & Poor's 500
Index was down 4.61 points, or 0.42 percent, at 1,092.17. The
Nasdaq Composite Index was down 7.07 points, or 0.32 percent,
at 2,203.73.
Equities were up for most of the session as Travelers led
gains on the Dow. The property-casualty insurer posted a profit
that beat Wall Street's estimate. The stock advanced 2.74
percent to $50.23.
IPhone maker Apple Inc gained 1.41 percent to $205.94, a
day after reporting results. Apple was the top positive on the
Nasdaq, followed by Microsoft Corp, which is scheduled to
report later this week.
That said, U.S. Treasury debt prices gained on stocks'
overall turnaround of fortunes.
The benchmark 10-year U.S. Treasury note was up 4/32, with
the yield at 3.613 percent, while the 2-year U.S. Treasury note
was up /32, with the yield at 0.8074 percent. The 30-year U.S.
Treasury bond was up 3/32, with the yield at 4.545 percent.
In currencies, the dollar was up against a basket of major
trading-partner currencies, with the U.S. Dollar Index .DXY> up
0.38 percent at 78.484 from a previous session close of
78.190.
The euro was down 0.53 percent at $1.4075 from a previous
session close of $1.4150. Against the Japanese yen, the dollar
was down 0.68 percent at 89.62 from a previous session close of
90.230.
In energy and commodities prices, U.S. light sweet crude oil
fell 65 cents, or 0.86 percent, to $74.61 per barrel, and spot
gold prices rose 55 cents, or 0.05 percent, to $1098.40. The
Reuters/Jefferies CRB Index was down 2.86 points, or 1.03
percent, at 273.88.
