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GLOBAL MARKETS-Dollar surges, Asia stocks slip on China fea

Published 01/20/2010, 10:42 PM
Updated 01/20/2010, 10:45 PM
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* China growth, inflation quicken, more c.bank moves feared

* Dollar surges to four-month high against currency basket

* Euro falls to five-month low but recovers later

* Most Asian shares fall, China data caps gains in Japan (Repeats to more subscribers)

By Raju Gopalakrishnan

SINGAPORE, Jan 21 (Reuters) - The dollar surged to a four-month high on Thursday and most Asian share markets fell after China reported strong fourth quarter growth, reinforcing fears that Beijing would take more measures to keep the economy from overheating.

The dollar rose 0.19 percent against a basket of six major currencies to its highest since September.

The euro, which has been soft for weeks over Greece's fiscal woes, plunged but bounced back off $1.4070 a key chart support. It last traded at $1.4087, down 0.14 percent on the day.

China's economy expanded by 10.7 percent between October and December, compared with a year earlier, below market expectations of 10.9 percent but up sharply from 9.1 percent in the third quarter.

Worries that China may be moving towards slower growth weighed on global markets on Wednesday after news that Chinese authorities had instructed some major banks to curb lending over the rest of this month after an early burst of credit.

Some investors fear China's moves could impede a still-weak global economic recovery and curb its insatiable demand for commodities and other imported goods. But most economists agree that gradual tightening moves by the Chinese central bank would do little to rob the economy of its strong momentum.

After Thursday's batch of generally strong data, economists said it was only a matter of time before Beijing tightened monetary policy further as inflationary pressures mount.

"The overall macro picture is one of continued strength in activity growth and rapidly rising inflation. We believe further policy tightening measures over and beyond what has already been implemented are needed in order control inflation in the coming months," said Yu Song and Helen Qiao of Goldman Sachs in a note.

The MSCI Asia-Pacific index excluding Japan eased 0.77 percent, while Thomson Reuters index of regional shares lost 0.80 percent.

Japan's Nikkei was up around 0.4 percent with falls in China-linked shares countered by gains in tech stocks.

"It's not anything specific, just putting together bits of things -- recent brokerage upgrades of tech companies, U.S. tech results, higher prices for chips," said Hiroaki Osakabe, a fund manager at Chibagin Asset Management.

Tech shares also led the charge in South Korea with LG Display, the world's No. 2 LCD panel maker, and Hynix Semiconductor No. 2 memory chip maker, surging on positive outlooks for the first quarter.

However, the overall KOSPI index was down 0.27 percent.

Shanghai shares and Hong Kong's Hang Seng index both fell on worries about China's future policy actions. "It does show that the economy has gone ahead of steam and the government may be trying to rein it in," said Howard Gorges, vice-chairman at South China Financial HOldings.

"If it continues to look too strong, the banks might have another increase in the reserve requirement ratio. The markets are expecting that to happen some time soon."

Copper, which is seen as an indicator of Chinese growth because of its wide use in industry, fell nearly 1 percent in Shanghai on the data.

"I think it's bad news for base metals, and copper in particular. Fixed asset investment is lower, and inflation higher, which basically means demand is down and inflation is up," said a trader based in Singapore.

"Rate hiking and currency appreciation have to come quicker."

In the bond market, Japanese government bonds held steady, giving back earlier gains made in response to firmer U.S. Treasuries, with the focus on the outcome of a 1.1 trillion yen ($12.06 billion) 20-year debt auction due at 0345 GMT.

The yield on the 20-year bond was unchanged at 2.140 percent after hitting 2.135 percent. The benchmark U.S. Treasury note yield fell to a one-month trough on Wednesday on a lower Wall Street and concerns over Greece's fiscal troubles.

Gold and crude oil were little changed. (Editing by Kim Coghill)

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