World stocks muted after poor German debt auction

BANGKOK (AP) — World stock markets edged higher Thursday as speculation that China might ease its monetary policy soothed fears that the German economy — Europe's strongest — may be succumbing to the continent's debt crisis.

Benchmark oil hovered above $96 per barrel while the dollar fell against the euro and the yen.

European shares rose in early trading, tracking a slight recovery in Asian shares earlier in the day. Britain's FTSE 100 rose marginally to 5,144.31. Germany's DAX gained 1.1 percent to 5,515.33 and France's CAC-40 rose 0.9 percent to 2,846.90. U.S. markets will be closed on Thursday for the Thanksgiving holiday and will have shortened hours on Friday.

Earlier in Asia, the Nikkei 225 index in Tokyo, reopening after a one-day public holiday in Japan, fell 1.8 percent to close at 8,165.18. Australia's S&P/ASX 200 slipped 0.2 percent to 4,044.20.

But Hong Kong's Hang Seng reversed an early loss to post a 0.4 percent gain to 17,935.10. South Korea's Kospi closed 0.7 percent higher at 1,795.06.

Benchmarks in Singapore and Shanghai also moved out of red territory to close higher. Mainland China's benchmark Shanghai Composite Index ended a six-session losing streak, but just barely, by gaining 0.1 percent to 2,397.55.

Speculation that China's central bank is preparing to ease its tight monetary policy in favor of a pro-growth one helped spur a wave of buying in Hong Kong, analysts said.

But the official Xinhua News Agency said Thursday that the lowering of reserve requirements for six rural banks in eastern Zhejiang was administrative rather than a policy shift. The banks' reserve requirements had been raised a year earlier after they failed to lend enough to farming businesses.

There have been signs that China's campaign of interest rate hikes and credit controls to tame stubbornly high inflation has been working, giving it leeway to ease monetary policy next year as the world economy stumbles.

"The positive catalyst today is the expectation that the China tightening cycle might loosen," said Jackson Wong, vice president at Tanrich Securities in Hong Kong. "I do think the rebound is pretty short term."

The chatter over Beijing's monetary policy helped push up Chinese banking shares. Hong Kong-listed Agricultural Bank of China Ltd. jumped 2.6 percent and Industrial & Commercial Bank of China, the world's biggest bank by market value, rose 1 percent.

But heavy industrial shares, which are closely tied to economic growth, fell as worries about a global economic slowdown grew. Japan's Komatsu Ltd., a world leader in construction machinery, tumbled 4.1 percent. Nippon Steel Corp. was 2.9 percent down. Shanghai-listed Fujian Cement Inc. lost 2.6 percent.

Global markets were spooked Wednesday by the poor results at an auction of German debt, which met with only 60 percent demand. Germany's Financial Agency blamed "the extraordinarily nervous market environment."

The weak buying suggests that Europe's crisis might be infecting strong nations that are crucial to keeping the euro currency afloat. Germany bears much of the burden of bailing out weaker neighbors such as Greece and Portugal.

Analysts at Credit Agricole CIB said the European debt crisis remains "the major concern for the markets" and that the German debt auction signals the spread of "the contagion to hard core economies" in the region.

Borrowing costs for Italy and Spain rose from levels that already were considered dangerously high. Europe lacks the resources to bail out those countries, its third- and fourth-biggest economies.

In the U.S., the government released a mixed batch of economic reports. Slightly more people applied for unemployment benefits last week, a sign that layoffs continue.

Consumer spending was sluggish but incomes rose a bit more than expected. Orders for long-lasting manufactured products fell for a second month and business investment dropped off.

The Dow fell 2.1 percent to close at 11,257.55. The Standard & Poor's 500 index fell 2.2 percent to 1,161.79. The Nasdaq fell 2.4 percent to 2,460.08.

Benchmark crude for January delivery was up 60 cents at $96.77 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.84 to settle at $96.17 in New York on Wednesday.

In currency trading, the euro rose to $1.3370 from $1.3326 late Wednesday in New York. The dollar dropped to 77.19 yen from 77.35 yen.

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