* Global markets fall as China starts tightening policy
* Commodities slide on fears Chinese demand growth will
slow
* Commodity currencies such as Aussie dollar also retreat
* Stocks, commodities pare some losses after initial fall
By Umesh Desai
HONG KONG, Jan 13 (Reuters) - Stock markets and commodities
fell in Asia on Wednesday after Beijing's surprise decision to
raise banks' reserve requirements sparked concerns that the
move could slow China's purchases of natural resources and
other imported goods from around the region.
High-yielding "commodity" currencies such as the Australian
dollar <AUD=> also weakened after the move by the People's Bank
of China late on Tuesday, which appeared to be prompted by
concerns that inflation could flare up if the economy
overheated. []
Oil prices also fell, with NYMEX crude futures <CLc1> down
by more than $1 a barrel to below $80 on worries China's move
would dampen demand and after an industry group reported an
unexpected increase in U.S. distillate inventories.
But the yen strengthened on short-covering as investors
unwound trades linked to a broad range of higher-yielding
assets, while U.S. Treasuries and Japanese government bonds
also gained in response to weaker stocks.
A disappointing start to the U.S. earnings season also
weighed on investor sentiment with a profit warning from
Chevron Corp <CVX.N> following on the heels of
weaker-than-expected results from aluminum maker Alcoa Inc
<AA.N>. The S&P 500 ended 0.9 percent lower overnight. []
Fears that China is getting ready to use more forceful
measures to cool the economy, including interest rate hikes,
also pulled down U.S. and European stocks on worries about a
potential slowdown in Chinese demand, with exporters facing the
brunt of the selling.
China's Vice Minister of Housing and Urban-Rural
Development Qi Ji said on Wednesday that property prices in
China's rich coastal cities were excessively high.
While China is stepping in to moderate its rapid economic
growth, which has buoyed many of its Asian neighbours, many
Western countries are still trying to stimulate demand.
But after their initial fall, most markets pared losses on
expectations that China's moves were targeted at soaking up
excess liquidity in its financial system and were unlikely to
derail a global economic recovery.
Even if it gradually raises interest rates, Beijing's
monetary policy is likely to remain largely loose and
pro-growth for some time.
"We have had a pretty good start to the year and the
markets are retracing a little bit at the moment," said Khiem
Do, head of the Asia multi-asset group at Baring Asset
Management, which oversees $50 billion.
"It will last for a few days and the market will climb back
up again."
Khiem Do said Wednesday's market move was reflective of the
volatility that investors can expect in the year ahead as
cental banks around the world gradually withdraw excess
liquidity from their banking systems and contemplate interest
rate hikes, unwinding emergency measures taken during the
height of the global economic crisis.
The MSCI index of Asia Pacific stocks traded outside Japan
<.MIAPJ0000PUS> was down 1.06 percent by mid-morning after
earlier falling 1.2 percent. It had struck a 17-month high on
Tuesday on optimism that a global recovery was gaining
traction.
As commodity prices skidded, the index of materials stocks
<.MIAPJMT00PUS> fell 1.7 percent.
The Thomson Reuters index of regional shares <.TRXFLDAXPU>
was down 0.17 percent.
Shanghai shares <> fell as much as 2.4 percent before
paring losses, while Hong Kong's Hang Seng index <> dropped
2 percent. Chinese banking and property stocks, the sectors
likely to be most impacted by policy curbs, led both markets
lower.
Japan's Nikkei <> fell 0.9 percent, with exporters and
resources firms weakened by the stronger yen and China's
attempts to lightly tap the brakes on the economy. Construction
equipment maker Komatsu Ltd <6301.T>, which has seen Chinese
sales soar, fell more than 2 percent.
Commodity-linked currencies such as the Australian and New
Zealand dollar <NZD=> were also on the defensive following the
moves by China -- a major importer of commodities.
Shanghai aluminium was down 3.4 percent after falling by
its 5 percent daily limit and zinc recovered after coming close
to its downside threshold. Copper <SCFc3> dipped 2.2 percent,
having earlier dropped as much as 4.4 percent.
The PBOC said it will increase commercial lenders' reserve
requirement ratios (RRR) by 50 basis points as of Jan 18,
making China one of the largest economies to start rolling back
policies used to combat the fallout from the global crisis.
The bank reserve increase followed two other tightening
steps taken by the PBOC bank on Tuesday.
The central bank raised the yield on its regular sale of
one-year bills by about 8 basis points, the first increase in
20 auctions and higher than forecasts for a rise of 4 basis
points.
It also drained a record 200 billion yuan via 28-day bond
repurchase agreements, ensuring it will draw net funds from the
market this week. []
(Reporting by Umesh Desai; Editing by Kim Coghill)
