(Updates prices, Europe close, changes dateline to NEW YORK)
* Stocks drop as China boosts bank reserve mandate
* Dollar index hits 7-mth high; Greece concerns dent euro
* Oil falls more than 2 pct to below $74 a barrel
By Al Yoon
NEW YORK, Feb 12 (Reuters) - World stocks slumped and the
dollar hit a seven-month high on Friday versus a basket of
other currencies after China surprised markets by tightening
monetary policy, raising fears about a global economic recovery
and denting investors' appetite for risk.
Worries over Greece's debt problems and signs of slow
growth in Europe continued to sting the euro, driving it to a
nearly nine-month low against the dollar.
China increased its reserve level for banks by 50 basis
points on the eve of its New Year's holiday in a move aimed at
slowing lending and tempering inflation. For details, see
[]
Crude oil fell more than 2 percent as the news out of China
sparked fears of slowing demand for commodities imports and as
data showed U.S. oil inventories rose more than expected last
week.
"We see the tightening on China's side is going to be
ratcheted up, which removes liquidity from the U.S equity
market," said Steven Grasso, director of institutional sales at
Stewart Frankel and Co Inc in New York.
"If we were all betting on the recovery story, that
recovery might be delayed."
U.S. stocks were lower at midday, but pared losses that had
driven indexes down earlier as much as 1 percent.
The Dow Jones industrial average at midday <> fell
44.44 points, or 0.44 percent, to 10,099.75. The Standard &
Poor's 500 Index <.SPX> declined 2.77 points, or 0.26 percent,
to 1,075.70 and the Nasdaq Composite Index <> rose 0.12
percent to 2,180.01.
The Nasdaq was lifted by a 2.5 percent rise in shares of
Research in Motion<RIMM.O> after Wedbush Morgan started
coverage on the BlackBerry maker with an "outperform" rating.
In Europe, the FTSEurofirst 300 <>> closed dowon 0.27
percent at 987.86 points, ending a four-day winning streak as
banks and mining stocks were hurt by the news on China and
Greece's debt problems.
"The rise in banks' reserve requirements reduces the
leverage of the Chinese to buy, and China are big buyers of raw
materials, so this has weighed heavily on mining stocks," said
Mic Mills, senior trader at ETX Capital.
Greek bank shares sagged 5 percent after the Greek economy
shrank more than feared in the fourth quarter, and a European
Union government source said meetings of the region's finance
ministers next week were unlikely to put together an aid
package for Athens.
World stocks reversed earlier gains, with the MSCI world
equity index <.MIWD00000PUS> slipping 0.1 percent. The reversal
throws into question a recent recovery in the measure, which
through last week had fallen some 10 percent since early 2009.
An index of the dollar against other major currencies
<.DXY> gained 0.32 percent to 80.25 as investors sought the
safety of the U.S. currency. The index earlier hit 80.748, its
best level since July 2009.
The euro slid to a near nine-month low against the dollar
at $1.3533 <EUR=>, as the China news came on top of concerns
about the lack of any detailed plan to rescue Greece and anemic
euro zone economic growth. But in New York, the euro <EUR=> was
down just 0.31 percent at $1.3638, and the dollar rose 0.41
percent to 90.09 yen <JPY=>.
The European Union sent a "clear message of solidarity"
with Greece on Thursday, tempering fears of a broader crisis in
the euro zone bloc. However, investor sentiment was on edge
amid persistent worry that other euro zone countries may run
into similar trouble. []
Economic data sparked concerns that Europe's economic
recovery may be starting to falter, with euro zone gross
domestic product expanding a meager 0.1 percent in the fourth
quarter. []
Signs that European leaders would support Greece encouraged
bargain-hunting in Asia, and Japan's Nikkei rose 1.3 percent.
Traders bought U.S. Treasuries after the eurozone GDP
report and amid uncertainty over details of an EU-Greece plan.
A break in issuance of U.S. debt next week also buoyed prices.
Prices were little changed after U.S. retail sales for
January topped forecasts. Retail sales grew by 0.5 percent,
compared with a consensus estimate of 0.3 percent. Also, U.S.
consumer confidence slipped in February. []
Yields on the benchmark 10-year Treasury note declined 0.04
percentage point to 3.69 percent. Bund futures <FGBLc1> rose.
Commodities fell, with U.S. light sweet crude oil <CLc1>
fell $1.53, or 2.03 percent, to $73.75 per barrel.
Spot gold prices <XAU=> fell $4.00, or 0.37 percent, to
$1090.90 and the Reuters/Jefferies CRB Index <.CRB> dropped
0.86 percent.
The next focus for the market in the European fiscal saga
is meetings next week between EU finance ministers. Meanwhile,
analysts said, markets are likely to remain jittery.
"Until we get more details on a political solution for
Greece, the euro is going to stay under selling pressure," said
Kasper Kirkegaard, currency analyst at Danske Bank in
Copenhagen.
(Additional reporting by Naomi Tajitsu and Jessica Mortimer
in London, and Leah Schnurr and Emily Flitter in New York;
Editing by Leslie Adler)
