The world index dropped for the fifth day, losing 0.6% around noon in London. The Dubai Financial Market General Index sank 4.1%, the biggest decline among benchmark indexes. Futures on the Standard & Poors 500 Index retreated 0.8%. Credit-default swaps on Chinese government debt jumped to a two-month high, according to CMA DataVision. Crude oil dropped 1.1% and copper slid 1.6%.
Bank of China Ltd and China Construction Bank Corp were told to restrict new loans, according to people familiar with the matter, potentially slowing expansion in the worlds fastest-growing major economy. Record government borrowing is troubling investors even as economies rebound. Standard & Poors cut its outlook on Japans AA sovereign credit rating to negative, citing diminishing flexibility to cope with debt.
Theres a looming risk of governments making decisions adversely affecting the economy, and that is materialising in China, said Tim Brunne, a credit strategist at UniCredit SpA in Munich. Weve had a huge amount of fresh credit from banks supporting the Chinese economy and the question has always been if the money flooding into the economy was really helpful or driving asset bubbles. While German business confidence rose more than economists forecast to an 18-month high and the UK economy resumed growth in the fourth quarter, Fitch Ratings said the European governments would need to borrow 2.2 trillion euro ($3.1 trillion) from capital markets in 2010. That amounts to 19% of the GDP. Europes Dow Jones Stoxx 600 Index fell for a fifth day, declining 0.9% to mark the longest losing streak since July. BHP Billiton Ltd, the worlds largest mining company, led commodity producers lower, falling 1.5% in London. Declines were limited as Siemens AG, Europes largest engineering company, rose 2.7% in Frankfurt after reporting the highest quarterly profit in more than two years. The MSCI Asia Pacific Index fell for a seventh day, dropping 2% to its lowest level in more than a month. Industrial & Commercial Bank of China Ltd and Bank of China retreated more than 3% in Hong Kong.
The decline in US futures indicated the S&P 500 may erase Mondays 0.5% advance, before reports that may show the drop in US home prices abated and consumer confidence climbed, putting the biggest part of the economy further along the path to recovery.
A record nine-quarter earnings slump for S&P 500 companies is projected to have ended in the fourth quarter with a 73% increase in profits. More than 130 companies in the index are scheduled to release results this week, including US Steel Corp, Johnson & Johnson and McGraw-Hill Cos.
The MSCI Emerging Markets Index fell 2%, heading for its steepest five-day decline in 11 months, and JP Morgan Chase & Co downgraded Brazils stocks to neutral. Taiwans Taiex lost 3.5% and Russias Micex Index dropped 2.6% as oil prices slumped. Every developing-nation currency tracked by Bloomberg weakened against the dollar, led by a 1.1% decline in South Koreas won after economic growth slowed more than estimated in the fourth quarter.