GLOBAL MARKETS-China worries chill markets, copper dives

Reuters - UK Focus

* Copper lowest since 2010, gold hits 5-1/2 mth high

* Stocks tumble in Europe, Wall Street to start down around0.2 pct

* China central bank ready to ease policy if needed -Reuters report

* Yen edges higher as Australian dollar loses ground

By Marc Jones

LONDON, March 12 (Reuters) - A fall in copper to nearfour-year lows combined with increasing concern about China'seconomic slowdown sent a wave of unease on Wednesday throughworld financial markets.

Global stocks fell for a fourth day and copper,often regarded as a proxy for China's economic fortunes, hit itslowest level since 2010 after Shanghai futures hadagain fallen by their 5 percent daily limit.

U.S. stock futures prices pointed to another negativestart for Wall Street later, with little in the way of U.S. datato drag attention away from the China anxiety.

In Europe, bourses from London to Lisbon tumbled and safe-haven German government bonds were indemand as the jitters added to the effects of the tug-of-warover Crimea, which has pitted Russia against Ukraine and theWest.

"Markets are watching what is happening in copper with aweand trepidation," said Societe Generale (Paris: FR0000130809 - news) head of currencystrategy Kit Juckes. "It's partly ongoing concern about Chinesegrowth (or lack thereof) and nagging worries about the Ukraine.And partly it is just that the commodity bubble burst last yearand not everyone noticed."

Copper's fall follows China's first domestic bond defaultwhich has raised concerns about a possible unravelling of themany loan deals which have used the metal as collateral.

Chinese firms that have difficulty raising loans have oftenbought copper as security for funds they borrow, but the 14percent drop in its value this year is making banks more waryabout the practice.

The metal has been in freefall for the last three days butthe worries finally appeared to be catching up with othermarkets. Stocks across Asia - although ironically not in China -had seen sizeable falls, while the Australian dollar,Chilean peso and South African rand, currencieshighly sensitive to commodities, all buckled.

The aussie was last down 0.4 percent at $0.8946 thoughtraders said it could have fallen much more had it not been fordemand created by a big A$7 billion bond sale.

Japan's Nikkei retreated 2.6 percent, continuing thesee-saw pattern of the last couple of months, while Australianstocks shed 0.6 percent. MSCI (NYSE: MSCI - news) 's broadest index ofAsia-Pacific shares outside Japan fell 1.2percent.

That mirrored a lacklustre performance on Wall Street, wheresoft data left investors no wiser on whether the U.S. economy'stroubles were weather-related or something more worrisome.


Economists are concerned that recent moves by Beijing tostamp out speculation on its rising currency and overly easylending may have overshot and will damage the world's secondlargest economy.

This is adding to broader strains on emerging markets asthey try to cope with shifts in global attitudes whilerecovering economies such as the United States begin to phaseout the cheap money churned out in recent years.

In Europe, the FTSEurofirst 300 index of top shareswas down 1.2 percent before U.S. trading, with basic resourcesstocks dominated by mining firms losing 1.6 percent.

At least one U.S. scrap copper trader has suffered "large"losses after a buyer in China defaulted on a deal in the pastweek, one of the first signs that sinking prices and tighteningcredit are affecting the physical market.

Investors were hoping Chinese data on industrial output,retail sales and urban investment on Thursday might show wherethe economy is heading.

Reuters reported that China's central bank is prepared toloosen monetary policy if economic growth slows further bycutting the amount of cash that banks must keep as reserves. This was a positive sign for markets, but also apossible indication of Beijing's growing nervousness.

Citing sources involved in internal policy discussions, thereport said an easing would happen if growth slips below 7.5percent, and would be on top of money market operations andcurrency intervention through state banks that traders say havealready loosened monetary conditions.


With the tensions over Ukraine in the background, U.S.government bonds began to gain after days oftreading water. The dollar eased a touch on the yen to 102.72 as the Japanese currency also benefited.

According to a draft document seen by Reuters, EU memberstates have agreed the wording of sanctions on Russia, includingtravel restrictions and asset freezes against those they feelare responsible for violating the sovereignty of Ukraine.

Gold, another favourite of risk adverse investors, climbedto a 5-1/2 month high of $1,362.25 an ounce, while crude pricesextended their pullback with U.S. oil down to $98.52,their lowest in a month and a half.

"The question in everybody's mind is - what is the biggestrisk to oil? And it is China slowing down," said JonathanBarratt, chief executive of commodity research firm Barratt'sBulletin in Sydney. "People have figured out that what happensin Ukraine doesn't matter to oil markets so much. It may impactother commodities, but not so much oil."

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