Stocks fall after China restricts lending again

Stocks mostly fell Friday after China said for the second time in a month it would force its banks to reduce their lending.

The Dow Jones industrial average fell 65 points but had been down as much as 160 points after China said banks would have to hold more cash. That cuts down on how much they can lend.

Chinese regulators are trying to keep their nation’s rapid economic growth from getting out of hand. However, investors worry that a slowdown in China could disrupt a U.S. recovery by hurting exports and profits of companies that do business there.

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The surprise announcement out of China came a day after a tame inflation report raised hopes that the country wouldn’t have to take more steps to put the brakes on its supercharged economy. China’s move is seen by some as the latest threat to the U.S. economy. The stock market has fallen from 15-month highs in the past four weeks as traders recoil from policy fights in Washington and from economic problems popping up in Europe.

Just the whiff of a slowdown in China hurt shares of industrial companies and materials producers. The hits came from two directions: a stronger dollar drove down prices of commodities and hurt companies that make money selling them. Meanwhile, concern grew that a slowdown in China will curb its appetite for everything from metals to jet engines.

Aluminum producer Alcoa Inc. and airplane maker Boeing Inc. each fell more than 1 percent. Both are among the 30 stocks that make up the Dow Jones industrials.

Richard C. Kang, chief investment officer and director of research at Emerging Global Advisors in Ridgewood, N.J., said big U.S. companies now look to developing markets like China for a growing part of their sales so the strength of foreign economies is crucial.

“Every investor always thought ‘China builds, Wal-Mart sells. End of story,'” Kang said. “If you look at the U.S. and who they export to, China is very quickly going up that list.”

A similar action to curb bank lending nearly a month ago in China spooked the market and helped start a slide that has brought major indexes down for four straight weeks. In afternoon trading, the Dow was above 10,000 but barely in the black for the week.

Concerns about debt problems in Greece as well as Portugal, Ireland and Spain hurt stocks during the week. On Thursday, European Union leaders pledged to provide Greece with support. There has been worry that debt problems there could spread and destabilize Europe’s common currency, the euro.

In late afternoon trading, the Dow fell 65.90, or 0.7 percent, to 10,078.29. The Standard & Poor’s 500 index dropped 4.67, or 0.4 percent, to 1,073.80, while the Nasdaq composite index rose 1.11, or 0.1 percent, to 2,178.52.

U.S. markets are closed Monday for President’s Day.

The slide Friday follows a strong performance a day earlier after European leaders said they would help Greece with its debt problems. The Dow jumped 1.1 percent Thursday, while the S&P 500 rose 1 percent and the Nasdaq composite index gained 1.4 percent.

With investors pulling out of riskier assets like stocks and commodities Friday, safe-haven investments like Treasurys and the dollar.

The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.69 percent from 3.73 percent late Thursday.

The stronger dollar hurt commodity prices, which are priced in dollars and become more expensive for foreign buyers when the dollar rises.

Crude oil fell $1.30 to $73.98 per barrel on the New York Mercantile Exchange after four days of gains.

Exxon Mobil Corp. shares fell 58 cents to $64.66.

The concern about China overshadowed a Commerce Department report that retail sales grew more than expected in January. Retail sales rose 0.5 percent last month, more than the 0.3 percent expected by economists polled by Thomson Reuters.

The report, which was delayed a day because major snowstorms shut down the federal government, was the best showing since November.

Meanwhile, the preliminary Reuters/University of Michigan consumer sentiment index for February fell to 73.7 from 74.4 in January and was weaker than forecast. Economists say the economy won’t make a lasting recovery until consumers feel more confident about spending.

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In corporate news, Warren Buffett’s Berkshire Hathaway Inc. is being added to the Standard & Poor’s 500 index. Funds created to mimic the movements of the S&P 500 will have to rebalance their portfolios to add Berkshire stock.

Alcoa fell 31 cents, or 2.3 percent, to $13.27, while Boeing dropped $1.22, or 2 percent, to $59.37.

The coming week brings reports on inflation as well as on housing. Minutes from the Federal Reserve’s last meeting, set for release Wednesday, could give investors insight into how soon the central bank might start to raise interest rates.

About three stocks fell for every two that rose on the New York Stock Exchange, where volume came to 617.3 million shares compared with 634.2 million shares traded at the same point Thursday.

The Russell 2000 index of smaller companies rose 1.56, or 0.3 percent, to 607.02.

Overseas, Britain’s FTSE 100 fell 0.4 percent, Germany’s DAX index lost 0.1 percent, and France’s CAC-40 fell 0.5 percent. Japan’s Nikkei stock average rose 1.3 percent.

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