* Euro gains capped by after China banks' reserve hike
* World stocks ease; Chinese equities down 1.3 pct
* JPMorgan posts strong quarterly results
By Dominic Lau
LONDON, Jan 14 (Reuters) - World stocks extended losses and
commodities remained under pressure on Friday after China's move
to raise banks' reserve requirements fanned concerns that the
key world growth engine may lose steam.
The euro fell back from one-month highs against the dollar
<EUR=> after earlier extending steep gains seen the previous day
after European Central Bank chief Jean-Claude Trichet warned on
inflation.
Futures on the U.S. S&P 500 <SPc1> and the Dow Jones
industrial average <DJc1> slipped around 0.4 percent, despite
strong quarterly results from lender JPMorgan <JPM.N>.
Futures on the tech-heavy Nasdaq <NDc1> were down 0.1
percent, though Intel <INTC.O> posted better than expected
quarterly earnings overnight. Intel shares in Frankfurt <INTC.F>
rose 2.6 percent.
China's 50-basis-point increase in required reserves forced
its banks to lock up more of their cash with the central bank as
Beijing hopes to drain the economy of excess money and tame
rising prices. []
The tightening hit copper prices and speculation about such
a move earlier sent Chinese stocks <> 1.3 percent lower,
while world stocks measured by the MSCI All-Country World Index
<.MIWD00000PUS> extended losses, falling 0.5 percent after
hitting a fresh 28-month high in the previous session.
The euro extended the previous session's sharp rally against
the dollar, before falling back.
The ECB's remarks surprised markets, which had expected a
more dovish tone and sparked speculation the central bank may
raise interest rates earlier than previously thought.
"A lot of banks are busy reassessing their view on when the
ECB will raise interest rates, which is supporting the euro and
adding to the squeezing of short euro positions," said Niels
Christensen, currency strategist at Nordea in Copenhagen.
Well received bond sales from highly indebted euro zone
members Portugal and Spain this week and speculation that
European policymakers will boost their war chest against attacks
on euro zone sovereign debt also contributed to the currency's
better tone.
The euro <EUR=> rose 0.1 percent to $1.3361 after hitting a
one-month high earlier and 0.3 percent to 1.2918 Swiss franc.
The dollar index <.DXY>, which tracks the greenback's
performance against a basket of major currencies, reversed
earlier losses to rise marginally to 79.229.
INFLATION FEARS
Inflation concerns weighed on shorter-dated German debt
prices. The two-year Schatz yield rose by 3 basis points to
1.145 percent, near its highest since mid-December.
Portuguese and Irish spreads held steady.
The pan-European FTSEurofirst 300 <> dropped 0.9
percent, pressured by commodity-related stocks as copper prices
<CMCU3> fell 0.5 percent and oil <CLc1> lost 1.2 percent.
"Thin markets have seen some really nasty moves this week.
Too much euphoria and too little joined-up thinking," said
Nicole Elliott at Mizuho Corporate Bank in London.
"When Spain's IBEX (stock index) <> rallied 10.5
percent in three days and India drops 8 percent in two weeks you
know things are unstable."
Japan's Nikkei average <> fell 0.9 percent after a
surprisingly weak settlement of options for January and a
stronger yen against the dollar trigger profit-taking.
(Additional reporting by Jessica Mortimer, Emelia Sithole and
Simon Falush in London, and Ian Chua in Sydney; Editing by Toby
Chopra)
