LONDON -World stock markets fell Wednesday amid ongoing concerns that China will curb bank lending to prevent a nasty inflationary shock and mounting speculation that the U.S. Federal Reserve will soon consider raising interest rates.
In Europe, the FTSE 100 index of leading British shares was down 47.89 points, or 0.9 percent, at 5,228.96 while Germany's DAX fell 44.71 points, or 0.8 percent, at 5,624.22. The CAC-40 in France fell 57.29 points, or 1.5 percent, to 3,749.75.
Earlier in Asia, every major stock market traded lower after China's Securities Times reported that some banks were ordered to pull back loans to comply with this month's lending targets. That followed reports the government had again raised the amount of money banks must keep in reserve, a move aimed at dissuading lending.
Investors are getting increasingly vexed over possible policy changes in China, as the country's growth helped limit the impact of the global recession over the last year — figures last week showed that China's economy grew an eye-catching 10.7 percent in the final three months of the year from the year before.
The worry is that tighter monetary policy in China to check inflationary pressures could kill off the limited economic recovery around the world — figures Tuesday from Britain and South Korea showed exactly how fragile the recovery is.
Later, the Fed takes center stage as it announces its latest interest rate decision.
Though the Federal Open Market Committee is expected to keep its benchmark interest rate unchanged at a range of zero to 0.25 percent, investors will be more interested in the accompanying statement and in particular whether there's continued support for keeping borrowing costs "exceptionally low and for an extended period."
Julia Coronado, an analyst at BNP Paribas, thinks there will be little change in the statement but that a number of "minor and significant tactical adjustments to policy" will likely be considered for the future which may begin to filter into the minutes and chairman Ben Bernanke's monetary policy report to Congress in mid-February — both next month.
Investors will also be keeping a close eye on President Barack Obama's first State of the Union address later to see if he continues to ratchet up his attacks on the banks.
Last week, Obama's announcement that he plans to limit the size of U.S. banks and impose restrictions on their more risky trading activities stoked heavy selling in the markets — Wall Street suffered its worst week in ten months.
Sentiment hasn't much improved this week despite encouraging U.S. corporate earnings from the likes of chemical company DuPont and technology company Apple Inc., and consumer confidence data on Tuesday — U.S. stocks ended a tad lower.
"The market was very nervous about policy decisions which had already been suggested concerning the banks and also those that may be introduced in the State of the Union address," said David Buik, markets analyst at BGC Partners.
Wall Street isn't expected to set the world ablaze later — Dow futures were down 8 points, or 0.1 percent, at 10,130 while the broader Standard & Poor's 500 futures fell less than a point to 1,087.
Earlier in Asia, Japan's Nikkei 225 stock average fell 73.20 points, or 0.7 percent, to 10,252.08, with the broader market hurt by heavy selling in Toyota shares. The world's No. 1 car company halted U.S. sales of eight models to fix a potentially dangerous gas pedal problem. Its shares tumbled 4.3 percent.
Elsewhere, South Korea's Kospi declined 0.7 percent to 1,625.48 while Australia's benchmark slid 1.6 percent and Taiwan's market fell 0.5 percent.
Hong Kong had bucked the broader selling for a while before capitulating, and the Hang Seng index ended 0.4 percent lower at 20,033.07.
Oil prices were flat with benchmark crude for March delivery down 1 cents at $74.70 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell 55 cents to settle at $74.71 on Tuesday.
The dollar fell 0.1 percent to 89.52 yen while the euro was unchanged at $1.4075.
