Bloomberg News

Emerging Stocks Drop for Second Day on China Rates, Euro Debt

July 06, 2011

July 6 (Bloomberg) -- Emerging-market stocks declined for a second day as China raised its benchmark interest rate and Moody’s Investors Service’s downgraded Portugal, reviving concern that Europe’s debt crisis will damage global growth.

The MSCI Emerging Markets Index decreased 0.4 percent to 1,161.17 at 4:45 p.m. in New York. Brazil’s Bovespa stock index declined on speculation the central bank will raise borrowing costs later this month, said Geoffrey Dennis, global emerging- markets strategist at Citigroup Inc. in New York.

Turkey’s ISE National 100 Index fell 1 percent and the FTSE/JSE Africa All Shares Index dropped 0.4 percent, the first decline for the South African benchmark gauge in nine days. The MSCI China Index, which tracks mostly Hong Kong-traded shares, slipped 1.1 percent, led by banks.

China will raise its benchmark deposit and lending rates for a third time this year starting tomorrow, the People’s Bank of China said on its website today. Moody’s downgraded Portugal’s debt four levels to junk yesterday, sparking speculation the country may require a second bailout.

“The rating downgrade of Portugal will increase nervousness ahead of key U.S. data,” Bartosz Pawlowski and other emerging-market analysts at BNP Paribas SA wrote in an e- mailed report. The downgrade may “open a fresh wound in the euro zone and so the good mood in risky assets is likely to be put aside for a while,” they wrote.

The rate of growth by service industries in the U.S. probably fell in June, according to analysts surveyed by Bloomberg News before Institute for Supply Management data due for release today.

Ruble Weakens

The ruble depreciated 0.5 percent against the dollar, and the lira weakened 0.4 percent. The rand slipped 0.1 percent and the Korean won strengthened 0.3 percent.

Oil and copper prices extended losses after China’s move. Oil fell 24 cents to settle at $96.65 a barrel in New York. Usinas Siderurgicas de Minas Gerais SA, Brazil’s second-largest steelmaker, declined 1.3 percent on concern that Chinese demand for building materials is waning.

Turkiye Garanti Bankasi AS, Turkey’s biggest lender by market value, lost 2.4 percent in Istanbul.

In Johannesburg, the All Share index slid 0.4 percent as mining companies Anglo American Plc and BHP Billiton Plc, which account for 23 percent of the gauge, retreated following the Chinese rate decision.

China Construction Bank Corp. declined 3.2 percent in Hong Kong and Bank of China Ltd. sank 3.6 percent as Temasek Holdings Pte, Singapore’s state-owned investment company, sold the lenders’ shares for $3.6 billion. The sale came hours after Moody’s Investors Service said Chinese banks’ non-performing loans may rise to as much as 12 percent of total credit.

China Rates

China’s one-year lending rate will increase to 6.56 percent, and its one-year deposit rate to 3.5 percent from 3.25 percent. Demand deposit rates were left unchanged, the People’s Bank of China said.

In Brazil, Natura Cosmeticos SA, Latin America’s largest cosmetics producer, was among the biggest decliners on the Bovespa by companies that depend on domestic demand. Natura fell 3 percent.

“There is a mood developing that you’ll have more interest rates hikes in Brazil than just one more,” Dennis said.

The Shanghai Composite Index fell 0.2 percent.

South Korea’s Kospi Index rose 0.4 percent and Taiwan’s Taiex Index added 0.5 percent.

In Seoul, Hyundai Heavy Industries Co. gained 6.4 percent, the most since May 31, after it ruled out a bid for Hynix Semiconductor Inc., which tumbled 5.4 percent.

The extra yield investors demand to own emerging-market debt over U.S. Treasuries rose one basis point to 293, according to JPMorgan’s EMBI Global Index.

--With assistance from Leon Lazaroff in New York. Editors: Richard Richtmyer, David Papadopoulos

To contact the reporters on this story: Jason Webb in London at jwebb25@bloomberg.net; Berni Moestafa in Jakarta at bmoestafa@bloomberg.net.

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net


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