By Justin Carrigan Jan. 20 (Bloomberg) -- The yen and dollar rose and stocks retreated on concern China’s moves to curb bank lending will slow the global economic recovery. Greek bonds slumped, driving the two-year yield to its highest level in more than a year, on speculation the government may struggle to fund the biggest deficit in the European Union. The yen advanced against all major currencies and the dollar strengthened versus all but the yen at 9:30 a.m. in New York. China’s Shanghai Composite Index tumbled 2.9 percent, dragging the MSCI Emerging Markets Index down 1.1 percent. The Standard & Poor’s 500 Index lost 0.8 percent as Morgan Stanley and International Business Machines Corp. declined after quarterly results disappointed investors. The yield on Greece’s two-year note surged as much as 89 basis points. Europe’s common currency declined after International Monetary Fund Managing Director Dominique Strauss-Kahn said in an interview in Hong Kong that Greece’s budget woes are “a serious problem.” Demand for the relative safety of the yen and the dollar increased after Liu Mingkang, China’s chief banking regulator, said some banks were asked to pare lending after a record 9.59 trillion yuan ($1.4 trillion) in new loans in 2009. “The fear is that Chinese authorities may have no choice but to slam the brakes,” said Neil Mellor, a currency strategist at BNY Mellon Corp. in London. Yen Rallies The yen climbed 1.2 percent versus the euro and 0.2 percent compared with the dollar. The U.S. currency strengthened 1 percent to trade at a five-month high against the euro. The New Zealand dollar declined against all 16 of its peers after consumer prices slipped 0.2 percent in the fourth quarter from the previous three months, damping the prospects for interest- rate increases. The S&P 500 retreated from yesterday’s 15-month high on concern the fourth-quarter earnings season will not live up to analysts’ forecasts for a 67 percent increase in profits. Morgan Stanley slid 2.4 percent after trailing analysts’ estimates on a decline in trading revenue. IBM lost 2.6 percent after reporting a decrease in business-consulting revenue. The yield on the 10-year Treasury note declined four basis points to 3.66 percent, while the 10-year German bund yield was down 2 basis points at 3.49 percent. Health-care shares posted the only gain among 10 groups in the S&P 500 on speculation the Democrat Party’s loss of a key Senate seat will derail President Barack Obama’s attempts to overhaul the U.S. health-care system. Republican Scott Brown won a Senate seat in Massachusetts, giving his party enough members to block votes on the government’s proposed bill to revamp the U.S. health-care system. Greek Bonds Tumble Greek bonds tumbled, sending the premium investors demand to hold the government’s 10-year bonds instead of similar- maturity benchmark German debt to 290 basis points, near the 300 basis-point level that would make the widest gap since the euro was introduced more than a decade ago. The yield on the 10-year Greek note jumped 28 basis points to 6.2 percent. European Commission President Jose Barroso said the nation’s economy is at a “delicate moment.” Greece’s budget deficit is forecast to reach 12.7 percent of gross domestic product this year, three times the limit for euro members. The Dow Jones Stoxx 600 Index lost 0.6 percent, while Greece’s benchmark ASE Index tumbled 2.8 percent. Crude oil fell 1.9 percent to $77.50 a barrel in New York trading. Copper for delivery in three months declined 1.2 percent to $7,454 a metric ton in London, leading declines in industrial metals. Gold for immediate delivery retreated 1.4 percent to $1,122.45 an ounce, while palladium dropped 1.4 percent to $460.15 an ounce, its first retreat in six days. The cost of protecting against a default on European corporate bonds rose, with credit-default swaps on the high- yield Markit iTraxx Crossover Index climbing 7 basis points to 417, according to JPMorgan Chase & Co. prices at 9:23 a.m. in London. The index is a benchmark for the cost of protecting bonds against default and an increase indicates a deterioration in perceptions of credit quality. --With assistance from Lukanyo Mnyanda, Gavin Serkin, Stuart Wallace and David Merritt in London. Editor: Michael Regan To contact the reporter on this story: Justin Carrigan in London on +44-20-7673-2502 or jcarrigan@bloomberg.net. To contact the editor responsible for this story: Mark Gilbert at +44-20-7073-3051 or magilbert@bloomberg.net.

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