Business

World stock markets rise on China interest rate hold

  • 13 December 2010
  • From the section Business

World stock markets have risen after China kept interest rates on hold over the weekend despite inflation reaching a 28-month high.

China's central bank also told six of the country's biggest lenders that a special increase in required reserves would be extended.

It follows a pledge by China's leaders over the weekend to make greater efforts to tackle rising prices.

Asian markets closed higher while leading indexes in Europe were also up.

The UK's FTSE 100 index closed up 0.8%, while France's Cac rose 0.9%, and Germany's Dax gained 0.3%.

Meanwhile, Wall Street's Dow Jones closed up 0.2%.

Earlier, the Nikkei gained 82 points to end at 10,294, while the Hang Seng closed 155 points higher at 23,318.

By limiting how much banks can lend, China's government is trying to draw money out of the economy and send a signal that it is serious about tackling inflation.

All banks in China had already been ordered last Friday to increase reserves by 0.5%, the third such rise in just over a month.

On Sunday, an annual economic planning meeting chaired by President Hu had decided that "managing inflation is now a priority".

On Saturday, official figures put annual inflation in November at 5.1%, well above the official target of 3%.

For hundreds of millions of poor households food costs are a major concern.

According to the BBC's Beijing correspondent Damian Grammaticas, China's authorities are particularly sensitive to the issue, fearing any possible causes of social instability.

The challenge China faces is how to tackle inflation without causing economic growth to slow too fast.

The authorities pumped huge amounts of money into the economy to keep it growing during the global financial crisis, but that stimulus is now feeding inflation.