LONDON (AFP) - European stock markets mostly fell as investors digested a move by China to hike interest rates for the first time in almost a decade to rein in the country's strong economic growth.
The London FTSE 100 index lost 0.16 percent to 4,635.50 points in early afternoon trading, while the Frankfurt DAX nudged up 0.02 percent to 3,960.20 points.
Meanwhile the Paris CAC 40 edged down 0.07 percent to 3,719.10 points and the DJ Euro Stoxx 50 index of leading eurozone shares dropped 0.12 percent to 2,815.02.
The euro stood at 1.2754 dollars.
"The Chinese authorities' decision to raise long-term deposit rates by 27 basis points has certainly caught the markets by surprise," said Anais Faraj, investment strategist at Nomura Securities.
China's central bank has raised its benchmark one-year lending rate to 5.58 percent from 5.31 percent, in a decision taken Thursday.
The one-year deposit rate was hiked, also by 27 basis points, to 2.25 percent.
Tokyo's benchmark Nikkei-225 index closed 0.75 percent lower at 10,771.42 points on Friday after China's first rate hike in nine years sparked fresh concerns that growth in one of Japan's most important export markets could slow, dealers said.
Hong Kong's key Hang Seng Index ended down 0.45 percent at 13,054.66 points on worries that China may follow up its surprise rate hike with other austerity measures to cool its economy, traders there said.
On Wall Street, US stocks eked out slim gains Thursday as investors paused for breath after a strong two-day rally, digesting a sharp decline in oil prices and the implications of China's move to boost interest rates.
The Dow Jones Industrial Average edged up 0.03 percent to close at 10,004.54 points and the Nasdaq composite rose 0.28 percent to 1,975.51.
The Standard and Poor's 500 broad-market index advanced 0.18 percent to 1,127.44 points.
In London, fears that China's rate hike would slow the country's voracious demand for commodities, in particular base metals, weighed on mining stocks, dealers said.
BHP Billiton fell 0.36 percent to 556 pence and Xstrata dropped 0.24 percent to 837 pence.
"The most immediate implication of the Chinese rate decision will be a moderation in commodity price pressures, or at least the speculative element to the on-going rally in raw materials," Faraj said.
Meanwhile falling crude prices impacted stocks, pushing up airlines but weighing on oils.
British Airways rose 1.63 percent to 218 pence and Germany's Lufthansa won 1.57 percent to 10.25 euros. But oil giant Shell lost 1.49 percent to 429 pence and French rival Total declined 0.97 percent to 162.9 euros.
Elsewhere in Paris, attention focused on French telecommunications equipment maker Sagem and aerospace engine manufacturer Snecma, who announced merger plans that would lead to privatisation of the latter.
Following a brief suspension to trading, Sagem shares tumbled 5.97 percent to 74 euros, while Snecma jumped 5.59 percent to 17 euros.
The merger does not "really make sense for Sagem", a trader at KBC Securities said.
French defence electronics group Thales won 4.36 percent to 28.75 euros on speculation it could be included in the Sagem/Snecma entity, dealers said.
10/29/2004 - 11:46 GMT - AFP