China tightens belt, markets feel the pinch

Rupee rises, Sensex slides.

The rupee closed at a four-and-a-half month high of 45.38 to a dollar today after opening at 45.53, while the Bombay Stock Exchange's (BSE's) metal index crashed 2.52 per cent to 4,853.77.

Metals and refinery stocks came under intense selling pressure on concerns of a slowdown in the Chinese economy. The Chinese central bank had raised interest rates yesterday.

While the drop in crude oil prices and the prospect of a shift in China's currency policy pulled the rupee up, fears of a slowdown in global and Chinese demand knocked the wind out of metal and refinery scrips.

The BSE Oil and Gas index fell 1.46 per cent to 2,918.69, led by Reliance Industries, which fell 1.93 per cent to Rs 529.25.

Dealers explained that after the Chinese rate hike, global metal prices crashed on the apprehension of a slowdown in demand and funds shifted to dollar assets.

Forex dealers said Chinese central bank authorities had sold US treasuries and bought Japanese bonds. The Japanese yen appreciated from 107.50 to a dollar to nearly 105. This made the dollar weaker against most major currencies like the euro and pound sterling as well some key Asian currencies.

Fears of a slowdown in Chinese demand spooked Indian metal and oil stocks. Hindalco was the biggest loser in the BSE Sensex basket, closing 3.27 per cent lower at Rs 1,187.10, followed by Tata steel, down 2.36 per cent to Rs 287.65.

The Steel Authority of India scrip fell 1.50 per cent to Rs 49.35, National Aluminium Company was down 1.76 per cent to Rs 167.45 and Sterlite Industries was down 2.68 per cent to Rs 532.10.

Analysts said a reversal in the firm trend in metals prices would affect world markets as global commodity prices were driven by the huge demand from China.

Tarun Sisodia, director, Anand Rathi Securities, said, "China's decision to hike interest rates will ease the country's booming demand for copper, steel, aluminum and oil."

The Reliance counter saw selling on fears that petrochemical prices would also suffer because of the rate cut move. The Hindustan Petroleum Corporation stock was down 1.63 per cent to Rs 307.80 and ONGC fell 0.54 per cent to close at Rs 788.15.