* China's rate hike takes shine off global risk appetite
* Dollar gains, commodities slip after China's rate move
* Stocks slide, hurt by China, poor Apple and IBM results
* US Treasuries rally as stock losses spur safe-haven bid
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, Oct 19 (Reuters) - World stocks and commodity
prices fell sharply on Tuesday after China, the engine of
growth in an anemic global recovery, raised interest rates for
the first time since 2007 to curb its booming economy.
Wall Street also was hit by fears that U.S. banks might be
on the hook for billions of dollars in souring mortgage bonds,
driving stocks to post their biggest loss in two months. For
details see: []
The dollar rallied broadly on China's unexpected
25-basis-point rate increase, a move that could mark the start
of a more aggressive phase of monetary tightening in the
world's fastest-growing major economy. []
Crude oil prices slid more than 4 percent, its biggest
single-day percentage decline since February, while copper
tumbled from 27-month highs and gold shed as much as 2.7
percent, set for its largest one-day drop since early July.
The People's Bank of China said it would lift its benchmark
one-year lending and deposit rate, effective on Wednesday, in a
move analysts said may suggest Beijing and Washington are
working together to ease rising currency tensions.
Traders cut their exposure to risk by taking refuge in U.S.
government debt and selling the euro and commodity-sensitive
Australian dollar. []
The Australian dollar, which last week rose above parity
with the U.S. currency for the first time since 1983, was hit
hardest, slipping 1.5 percent. The euro and sterling also fell
sharply.
Investors feared China's quarter-percentage point rise in
interest rates could dampen Chinese and global growth while
slowing China's voracious demand for commodities.
[]
"China's rate increase instantaneously pushed people to
take risk off the table," said Boris Schlossberg, director of
research at GFT Forex.
China "is trying to clamp down on growth and that's going
to reflect badly on Australia, on Germany, on much of the world
economy as it readjusts to the idea that Chinese growth may not
be as torrid as expected," Schlossberg said.
The dollar was up against a basket of major currencies,
with the U.S. Dollar Index <.DXY> up 1.66 percent at 78.206.
Trading in Tokyo was poised to open lower, with the
December futures contract that trades in Chicago for the Nikkei
225 <0#NK:> down 50 points at 9,495.
Wall Street fell further in late trade on news that Bank of
America and potentially others may be forced to take back
billions of dollars in mortgages that should not have been
bundled into bonds.
"It's reminding investors of what was the main impetus for
the horrific sell-off we had a few years ago," said Eric Kuby,
chief investment officer at North Star Investment Management in
Chicago. "If you were recently struck by lightning, you are a
little skittish when there is a thunderstorm."
Bank of America <BAC.N> shares fell 4.4 percent to $11.80
after a Bloomberg report, citing people familiar with the
matter, said investors PIMCO and BlackRock as well as the New
York Federal Reserve Bank were seeking to force the lender to
repurchase $47 billion in mortgage bonds.
The Dow Jones industrial average <> slid 165.07 points,
or 1.48 percent, to end at 10,978.62. The Standard & Poor's 500
Index <.SPX> dropped 18.81 points, or 1.59 percent, to
1,165.90. The Nasdaq Composite Index <> lost 43.71 points,
or 1.76 percent, to close at 2,436.95.
The MSCI all-country world equity index <.MIWD00000PUS>
fell 1.5 percent.
GOLD SLIDES, OIL DROPS
Oil fell on the dollar's strength and fears that demand
will slow from China.
U.S. crude for November <CLc1> delivery fell $3.59, or 4.32
percent, to settle at $79.49 per barrel, the biggest one-day
percentage dive since Feb. 4.
In London, ICE Brent December crude <LCOc1> fell $3.27, or
3.88 percent, to settle at $81.10 a barrel.
U.S. gold futures for December delivery <GCZ0> sank $36.10,
or 2.6 percent, to settle at $1,336 an ounce.
U.S. Treasuries prices rallied as stock market losses
spurred demand for safe-haven U.S. government debt and several
Federal Reserve officials said easier monetary policy was
needed to support the economy. []
Several Fed officials said the Fed needed to implement a
more accommodative policy to fulfill its mandate to pursue the
highest level of employment consistent with price stability.
"The stock market was down and that gave Treasuries a bid,"
said John Spinello, chief fixed-income technical strategist at
Jefferies & Co. in New York. "And Fed officials are talking
more and more about adding reserves to the system."
The benchmark 10-year U.S. Treasury note <US10YT=RR> was up
10/32 in price to yield 2.48 percent. The 2-year U.S. Treasury
note <US2YT=RR> was break-even, yielding 0.36 percent.
Overnight in Asia, Japan's Nikkei share average closed 0.4
percent higher <>, extending a gain since September to 6.9
percent, but MSCI's index of Asia Pacific stocks outside Japan
<.MIAPJ0000PUS> slipped 0.6 percent.
China's rate-hike move came after Asian markets had closed.
The dollar <JPY=> was up 0.42 percent at 81.57 against the yen;
the euro <EUR=> was down 1.52 percent at $1.3733.
(Reporting by Edward Krudy, Wanfeng Zhou, Ellen Freilich,
Robert Gibbons and Frank Tang in New York; Writing by Herbert
Lash)
