* 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) - Stocks and commodities fell
in Asia on Wednesday after China's surprise hike of banks'
reserve requirements sparked investor concerns that the move
could slow China's purchases of natural resources and other
imported goods from Asia.
High-yielding currencies such as the Australian dollar
<AUD=> weakened after the move by the People's Bank of China
late on Tuesday, which was the strongest step to date by the
central bank towards reining in asset price inflation.
[]
Most markets recovered after an initial fall on a growing
conviction that the policies confirm a broad economic recovery
and were targeted at soaking up excess cash from the financial
system.
"Its impact on earnings and economic activity in China will
not be material," said Adrian Mowat, Chief Asian and Emerging
Market Equity Strategist at JPMorgan.
"It is a signal that the economy is strong and the current
policy is to reverse pro-growth strategies put in place in
response to the credit crunch and synchronised global
recession." The MSCI index of Asia Pacific stocks traded
outside Japan <.MIAPJ0000PUS> was down 1.4 percent by 0525 GMT
after earlier falling 1.6 percent. It had struck a 17-month
high on Tuesday on optimism that a global recovery was gaining
traction.
As commodity prices skidded with the index of materials
stocks <.MIAPJMT00PUS> down nearly 2 percent.
Shanghai shares <> fell as much as 2.8 percent before
paring losses, while Hong Kong's Hang Seng index <> dropped
2.2 percent.
Oil weakened, 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.
The yen strengthened on short-covering as investors unwound
trades linked to a range of higher-yielding assets.
Japanese government bonds also gained in response to weaker
stocks, while U.S. Treasuries surrendered gains after a rally
that took cue from weaker shares on Wall Street.
A disappointing start to the U.S. earnings season also
weighed on investor sentiment with a profit warning from
Chevron <CVX.N> following on the heels of poor results from
aluminium maker Alcoa <AA.N>. The S&P 500 ended 0.9 percent
lower. []
Fears that China may be more forceful in cooling its
economy, for example by hiking interest rates, also pulled down
U.S. and European stocks. Investors worried about a slowdown in
Chinese demand could hit exporters, which faced the brunt of
the selling.
China's Vice Minister of Housing and Urban-Rural
Development Qi Ji said on Wednesday that property prices in
rich coastal cities were excessively high.
UP IN A FEW DAYS?
While China is stepping in to moderate its rapid economic
growth, which has buoyed many of its neighbours, many Western
countries are still trying to stimulate demand.
Even if it gradually raises interest rates, Beijing's
monetary policy is likely to remain loose and pro-growth.
"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. "It will last for a few days and the market will
climb back up again."
Khiem Do said Wednesday's market reflected the volatility
that investors can expect this year.
Chinese banking and property stocks, the industries likely
to be most affected by policy curbs, led both Hong Kong and
Shanghai lower, although the impact on balance sheets was seen
as insignificant.
Other Asian markets are bracing for a lower Chinese demand.
Japan's Nikkei <> fell 0.9 percent, with exporters and
resources firms weakened by the stronger yen as China moved to
tighten liquidity. Construction equipment maker Komatsu
<6301.T>, which has seen Chinese sales soar, fell 2.5 percent.
Commodity-linked currencies such as the Australian and New
Zealand dollar <NZD=> were also on the defensive following the
moves by commodity-hungry China.
Shanghai aluminium was down 3.8 percent after falling by
its 5 percent daily limit and zinc recovered after coming close
to its downside threshold. Copper <SCFc3> dipped 2.4 percent,
having earlier dropped as much as 4.4 percent.
(Editing by Jan Dahinten)
