World markets drop amid China policy doubts

HONG KONG -- Global stock markets dropped today as weakness on Wall Street and uncertainty about Chinese stimulus measures that have pumped up the country's economy led investors to take profits from a recent rally.

A number of markets in Asia and Europe were lower by 1 percent or more, while oil retreated from a 2009 high and the dollar recovered modestly against the yen and the euro.

Investors were spooked by losses on Wall Street late yesterday after a leading analyst downgraded major U.S. bank Wells Fargo & Co, touching off more fears about the financial sector. That combined with growing anxiety about the pace of the market's rise to drag the Dow Jones index below the 10,000 level.

Meanwhile, news China's economy expanded at a heady 8.9 percent in the third quarter, in line with market expectations, gave investors few reasons to wade deeper into the markets.

While the figures were seen as mostly encouraging, some analysts said Chinese exports and private investment continued to lag, suggesting growth was still largely the result of enormous government stimulus spending.

As trading started in Europe, Britain's benchmark was down 1.6 percent, Germany's DAX was off 1.9 percent and France's CAC-40 lost 1.7 percent.

Europe followed Asia, where Japan's Nikkei 225 stock average fell 66.22, or 0.6 percent, to 10,267.17, and Hong Kong's Hang Seng dropped 107.59 points, or 0.5 percent, to 22,210.52.

In China, the Shanghai index lost 19.18 points, or 0.6 percent, to 3,051.41. South Korea's benchmark fell 1.4 percent, Australia's index was off 0.5 percent and India's market shed 1.2 percent.

Analysts in China pointed to budding concerns about the direction of Beijing's stimulus program for some of the losses.

Markets have been on a tear in recent weeks, with benchmarks in the U.S. and Asia hitting new highs for the year, as the ailing dollar and massive liquidity encourage investors to channel money into stocks.

But some analysts have been warning that investors are increasingly complacent about the risks facing the market. One closely watched measure of investor fears about the market, the Chicago Board Options Exchange's Volatility Index, reached its lowest level in a year yesterday before jumping higher.

The VIX is now around 22, down nearly 45 percent this year. Its historical average is 18-20, and readings below 25 are often seen as a sign investors are relaxed or complacent. It hit a record 89.5 a year ago as the financial crisis deepened.

In New York overnight, the Dow Jones industrial average fell 92.12, or 0.9 percent, to 9,949.36, just above its low of the day. It was the biggest point and percent drop since Oct. 1.

The broader Standard & Poor's 500 index fell 9.66, or 0.9 percent, to 1,081.40, after reaching 1,101.36, its highest level in the past year. The Nasdaq composite index fell 12.74, or 0.6 percent, to 2,150.73.

U.S. futures augured a modestly lower open on Wall Street. Dow futures were down 30 points, or 0.3 percent, at 9,871.

Oil prices slipped to near $80 a barrel today as a wobbly U.S. dollar steadied. Benchmark crude for December delivery fell $1.13 to $80.24 a barrel. The contract jumped $2.25 overnight as the dollar fell to its lowest since August 2008.

In currencies, the dollar was stronger at 91.28 yen from 91.00 yen. The euro fell to $1.4972 from $1.4999.

-- The Associated Press