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GLOBAL MARKETS-China worries boost demand for safe-haven currencies; stocks pressured by Europe

a crop of weak earnings numbers and forecast downgrades in
Wednesday, 23 Oct 2013 | 12:56 PM ET

pressured by Europe@

* China short-term rates spike boosts demand for dollar, yen, Swiss franc

* Wall Street down after four-day streak of records on S&P 500

* Spanish, Italian banks worst hit by ECB plans for tougher bank stress tests

NEW YORK, Oct 23 (Reuters) - The safe-haven dollar, yen and Swiss franc rose on Wednesday on worries over Chinese monetary policy, while global equity markets ended their recent winning streak as weak U.S. corporate results and concerns over tougher stress tests on euro zone banks prompted profit-taking. On Wall Street, the S&P 500 was on track to snap a four-day streak of record highs as shares of Caterpillar and a number of chipmakers tumbled on weaker-than-expected results. The earnings of two Dow components underlined how the corporate reporting season has been mixed, with investors concerned about revenue growth and outlooks. Caterpillar Inc was one of the biggest decliners, slumping 5.9 percent to $83.94 after the heavy-equipment machinery maker cut its full-year outlook. On the upside, Boeing Co surged 5.7 percent to $129.45 after the planemaker raised its full-year forecast. "We've seen a mixed bag as far as earnings go, and comparisons will only get harder next quarter," said Jerry Villella, investment specialist for JP Morgan Private Bank in Dallas. "You have to be more careful about where you invest. We have more modest expectations going forward." European shares snapped a nine-day winning streak, hit by plans for a tougher stress test for euro zone banks, as well as other sectors. The FTSEurofirst 300 index lost 0.6 percent. The STOXX Europe 600 Banks index dropped 2.2 percent, suffering its worst day in two months after the European Central Bank said it would review the quality of a broader-than-expected range of assets held by top regional lenders next year, which may result in them having to raise fresh capital. The Spanish IBEX and Italian FTSE MIB suffered worst sessions since August. MSCI's world equity index, which tracks shares in 45 countries, fell 0.7 percent. On Wall Street, the Dow Jones industrial average was down 80.57 points, or 0.52 percent, at 15,387.09. The Standard & Poor's 500 Index was down 10.63 points, or 0.61 percent, at 1,744.04. The Nasdaq Composite Index was down 28.87 points, or 0.73 percent, at 3,900.69.

CHINA CONCERNS China's primary short-term money rates rose on Wednesday in a delayed reaction to signals from regulators that they are considering tightening liquidity to tamp rising inflationary pressure. A policy adviser to the People's Bank of China told Reuters on Tuesday that the authority may tighten cash conditions in the financial system to address inflation risks. The benchmark seven-day repo contract, which has been on a steady slide since Oct. 9, rose steeply in the morning session with quotes as high as 4.55 percent, up more than a full percentage point from the previous final closing quote.

Concerns about soft U.S. jobs data for September, which appeared to rule out a cut in U.S monetary stimulus before next year and caused a plunge in the dollar, took a back seat as Chinese money market rates climbed to levels not seen since July. Rising liquidity needs for Chinese corporate tax payment deadlines and worries about bad banking debt appeared partly responsible for the jump in short-term rates, analysts said. The rate spike was short-lived but caused a market panic nevertheless, causing a scramble for safe-haven currencies. "The weight of a weak U.S. non-farm (payroll data released on Tuesday) is surpassed by rising risk aversion on concerns over China's money market. Profit-taking takes hold," said Camilla Sutton, chief currency strategist at Scotiabank in Toronto. The yen was in demand, pushing the dollar down 0.8 percent at 97.31 yen and the euro 0.9 percent weaker at 134.06 yen. The Swiss franc rose as the dollar and euro both slipped 0.3 percent to 0.8924 and 1.2296 francs , respectively. U.S. Treasuries yields fell to the lowest in three months. with the benchmark 10-year notes up 9/32 in price to yield 2.4799 percent, the lowest since July 23 and down from 2.60 before the jobs data was released on Tuesday. In commodities trading, U.S. crude fell toward $96 a barrel to its lowest since July, outpacing a smaller drop in Brent futures, pressured by ample supplies and a further inventory build-up in the United States, the world's top consumer. U.S. crude fell $1.40 to $96.90 and earlier reached $96.16, its lowest since July 1. Brent crude fell $1.65 to $108.32 a barrel after hitting a session high of $110.06.

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