China shares lead global stock market falls

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Chinese shares have suffered their biggest one-day fall since August last year because of fears that the government may increase interest rates.

The Shanghai Composite index closed down 5% on concerns that the government might shortly raise interest rates in a further attempt to control inflation.

The speculation, along with heightened fears about the Irish Republic's debt problem, also hit other markets.

US shares closed down almost 1%, while some European markets also slipped.

New York's Dow Jones index fell 91 points, or 0.8%, to 11,193.

Paris' Cac 40 closed down 36 points, or 0.9%, at 3,831, while London's FTSE 100 fell 18 points, or 0.3%, to close at 5,797. Frankfurt's Dax index bucked the trend to close up 11 points, or 0.2%, at 6,735.

The price of oil also fell sharply, with US light crude down almost $3 a barrel at $84.88 and London Brent falling by a similar amount to $86.04.

The gold price also suffered, dropping $45 to $1,364 an ounce.

Rate rumours

China's inflation rate hit a two-year high in October, according to figures released on Thursday, largely due to higher food prices.

This was despite recent government efforts to dampen price rises and cool its rapidly growing economy through interest rates rises and the introduction of limits on bank lending.

Some analysts expect the government to intensify efforts to control price rises in the coming days.

"There are some rumours there might be another interest rate hike this weekend," said Linus Yip from First Shanghai Securities in Hong Kong.

Image caption,
The falls began in Asia overnight and continued in the early hours of European trading

'Full confidence'

Earlier sharp falls in European markets also coincided with the release of figures showing that the pace of economic recovery in Europe's leading economies had declined in the third quarter.

A slowdown had been expected, especially in Germany which enjoyed record growth in the previous quarter. But the figures were slightly lower than economists had been predicting.

There was no update on the state of the Irish economy, which has been the focus of growing unease in recent days, prompting talks on the sidelines of the G20 summit in South Korea.

European members of the G20 - France, Germany, Italy, Spain and the UK - issued a statement aimed at reassuring the bond markets, which pushed the Irish government's cost of borrowing to record levels this week.

Despite initial concerns from the Irish prime minister that the statement could be counterproductive, Irish bond yields fell, reflecting increased confidence in the likelihood that Irish government debt would be paid back in full.

They dropped to 8.2%, down from the all-time high of 8.95% reached on Thursday.

Irish Finance Minister Brian Lenihan said the statement had shown the countries had "full confidence" in his government's policies.

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