Markets nervous after rates rise in China

Eurostoxx 50: 3,042.50 (+11.32) Frankfurt DAX: 7,323.24 (+39.62) Paris CAC: 4,108.27 (+17.47)

Eurostoxx 50: 3,042.50 (+11.32) Frankfurt DAX: 7,323.24 (+39.62) Paris CAC: 4,108.27 (+17.47)

EUROPEAN SHARES slipped back from 29-month highs yesterday after China increased interest rates again to fight stubbornly high inflation, raising concerns about economic growth.

Chemical-makers featured on the downside. Givaudan slipped 3.5 per cent after the flavour and fragrance-maker proposed a smaller-than-expected dividend and said high raw materials prices would weigh on margins.

Other stocks to fall included miners Kazakhmys, ENRC, and Vedanta, down between 0.6 and 1.4 per cent. However, other miners had cut their losses by the end of the session.

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Some upbeat corporate news helped limit losses for key indexes. UBS rose 4.3 per cent after saying it expects to win more client money for its wealth management business in 2011, and sees a rebound in the investment banking division.

The pan-European FTSEurofirst 300 index of top shares fell 0.1 per cent to close at 1,176.28 points, having hit its highest close since September 2008 in the previous session.

Investors became nervous about the global recovery when China’s central bank said its benchmark deposit and lending rates would be raised by 25 basis points.

“The markets have been relying to some extent on emerging markets growing for an elongated period, and if that’s being called into question, that’s a headwind to equity markets,” said Richard Batty, investment director at Standard Life Investments.

On the upside, car-makers were in demand.

German luxury car-maker BMW gained 4.7 per cent after group unit sales rose in January and it said it expected strong growth to help it reach its 2011 target.

Peugeot rose 4.3 per cent ahead of results today.

Swedbank gained 5.2 per cent after the Swedish bank said it would pay out a higher dividend than expected and its quarterly earnings beat expectations.

ArcelorMittal was 2.8 per cent higher after the world’s largest steel-maker forecast a faster-than-expected recovery in demand.

Rising raw material costs made a dent in earnings at the end of 2010 for Swedish engineer Alfa Laval, which lost 3.6 per cent after forecasting flat demand in the first quarter. – (Reuters)