By David Merritt Jan. 22 (Bloomberg) -- Financial stocks fell and the dollar weakened on concern President Barack Obama’s plan to rein in banks will dent U.S. earnings. Emerging-market shares dropped for a third day on speculation China will raise interest rates. The Dow Jones Stoxx 600 Banks Index plunged 4 percent to a six-month low at 11:55 a.m. in London as Barclays Plc and Credit Suisse AG slid more than 6 percent. The MSCI Emerging Markets Index declined 1.7 percent, heading for the biggest weekly loss since October. Futures on the Standard & Poor’s 500 Index retreated 0.4 percent after the Dow Jones Industrial Average yesterday erased its gain for 2010. The dollar slipped against 12 of its 16 most-traded counterparts. U.S. government plans to restrict proprietary trading triggered declines of more than 6 percent in JPMorgan Chase & Co. and Bank of America Corp. yesterday. Financial companies contributed all of the anticipated growth in S&P 500 earnings in the fourth quarter, according to analysts’ estimates. China will raise interest rates by the end of June and increase banks’ reserve requirements, according to the median forecasts of 17 economists surveyed by Bloomberg. “Authorities are certainly treading a fine line between curbing bubbles and choking off economic growth,” Jim Reid, the London-based head of fundamental strategy at Deutsche Bank AG, wrote in note to investors. “It’s clear that politicians are starting to have enough confidence that the global economy has been saved.” ICAP, Deutsche Boerse The MSCI World Index of 23 developed nations’ stocks retreated for a third day, its longest losing streak in more than a month. Asian stocks fell for a fifth day. ICAP Plc, the world’s biggest broker of trades between banks, tumbled 7.7 percent in London. Deutsche Boerse AG, the operator of the Frankfurt stock exchange, slid 4.5 percent. Emerging-market stocks fell to the lowest level in a month, led by Kazakhstan’s KASE Index, which dropped 3.1 percent. Russia’s Micex Index slipped 2.7 percent, even after Fitch Ratings raised its outlook on the country’s credit rating to “stable” from “negative.” Indexes in Taiwan, South Korea and the Philippines declined more than 2 percent. The Shanghai Composite Index dropped 1 percent, extending the year’s decline to 4.5 percent, after the government raised concern the economy may be overheating in reporting yesterday expansion of 10.7 percent in the fourth quarter. U.S. Futures Futures on the S&P 500 indicated the benchmark U.S. gauge may extend yesterday’s 1.9 percent slump after Obama announced the bank proposals. The Dow Jones Industrial Average yesterday erased its gains for 2010. The biggest stock market rally since the Great Depression boosted the S&P 500’s price-earnings multiple to 25 last week from 10.1 in March, the lowest in a quarter-century, data compiled by Bloomberg show. Analysts say earnings at financial companies rose 120 percent in the fourth quarter, accounting for all of the income increase in the Standard & Poor’s 500 Index. General Electric Co. slipped 0.9 percent in early New York trading even after reporting a smaller profit decline than analysts estimated as the finance arm absorbed losses and shipments of aviation and energy equipment slowed from a year earlier. Schlumberger Ltd., the world’s largest oilfield- services provider, slipped 0.8 percent in Germany after saying fourth-quarter profit fell 31 percent. Debt Risk The perceived risk of holding bonds sold by HSBC Holdings Plc, Deutsche Bank AG and Credit Suisse Group AG rose, driving the Markit iTraxx Financial index of credit-default swaps up 4 basis points to 87.75, close to the highest since September, according to JPMorgan Chase & Co. Default swaps on U.S. government debt increased 2 basis points to a six-month high of 44.5, CMA DataVision prices show. Greek bonds fell on speculation the government may struggle to find buyers of a planned 3 billion euros ($4.2 billion) of debt. The declines drove the yield on the 10-year bond up as much as 11 basis points. The dollar snapped six days of gains versus the euro, sliding 0.4 percent, and traded near a one-month low against the yen, losing 0.3 percent. The Dollar Index, which tracks the currency against those of six U.S. trading partners, declined 0.1 percent. Crude oil slipped 0.4 percent to $75.76 a barrel in New York trading, retreating for a third day. Palladium slumped 4.4 percent to $431.5 an ounce and platinum dropped 3.9 percent to $1,533 an ounce in London. Rubber dropped 4.4 percent to 289.3 yen on Tokyo, the biggest retreat since November. To contact the reporter on this story: David Merritt in London on dmerritt1@bloomberg.net.

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