(Updates with U.S. closing prices)
* Stocks drop as China boosts bank reserve mandate
* Dollar index hits 7-mth high; Greece concerns dent euro
* Oil falls 1.5 pct to near $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 a move by China to tighten monetary
policy raised fears that it would hurt a global economic
recovery.
Also denting investor appetite for risk was wavering
confidence over the ability of European leaders to solve
Greece's debt problems and curb the impact on struggling
economies elsewhere.
Crude oil fell about 1.5 percent as China's decision to
increase its reserve level for banks by 50 basis points sparked
fears that a slowdown in lending would curb demand for
commodities imports. Crude oil prices were also hurt by data
showing U.S. oil and gasoline inventories rose more than
expected last week.
The move by China on the eve of its New Year's holiday was
the second time this year it has increased the reserve level
for banks as it aims to prevent the economy from overheating by
slowing lending and tempering inflation. For details, see
[]. For graphic: http://link.reuters.com/xar29h.
"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."
The Dow Jones Industrial Average <> fell 45.05 points,
or 0.44 percent, to 10,099.14. The Standard & Poor's 500 Index
<.SPX> declined 2.96 points, or 0.27 percent, to 1,075.51 and
the Nasdaq Composite Index <> rose 0.28 percent to
2,183.53.
Large manufacturers and commodity-related companies were
among the biggest decliners, with many dependent on Chinese
demand. Aluminum company Alcoa Inc <AA.N> fell 2.2 percent to
$13.28.
The Nasdaq was lifted by a 2.1 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 down 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
index<.MIWD00000PUS> ending flat at 283.40.
The China news drove investors to the traditional safety of
the dollar, with an index of the dollar against other major
currencies <.DXY> gaining 0.4 percent to 80.311. 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 growth. In New York, the euro <EUR=> was down 0.48
percent at $1.3615.
Against the yen, the dollar rose 0.32 percent to 90.01 yen
<JPY=>.
Although the European Union sent a "clear message of
solidarity" with Greece on Thursday, tempering fears of a
broader crisis in the euro zone investor sentiment was on edge
amid persistent worry that other euro zone countries may run
into similar trouble. []
Economic data also sparked concerns that Europe's recovery
may be starting to falter, with euro zone gross domestic
product expanding a meager 0.1 percent in the fourth quarter.
[]
Traders bought U.S. Treasuries after the euro zone 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 <2CLc1>
down settling down $1.15, or 1.5 percent, to $74.13 per
barrel.
Spot gold prices <XAU=> fell $2.55, or 0.23 percent, to
$1092.40 and the Reuters/Jefferies CRB Index <.CRB> dropped
0.66 percent.
Signs that European leaders would support Greece encouraged
bargain-hunting in Asia, and Japan's Nikkei rose 1.3 percent.
Investor focus in the European fiscal saga is meetings next
week between EU finance ministers. Meantime, markets will
likely remain volatile given difficulty in aligning support for
fiscally struggling euro zone nations, analysts said.
"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, Ellis Mnyandu and Emily Flitter in
New York; Editing by Leslie Adler)
