LONDON (AP) — Global stock markets reeled Monday, with Shanghai's index enduring its biggest loss in four years, after an increase in China's commercial lending rates sparked fears about the state of the world's second-largest economy.
Analysts say the spike in the country's interbank lending rate was part of an effort to curb the high level of off-balance-sheet lending in China that could threaten the country's financial stability.
But investors feared the move could also hurt economic growth. China's major state-owned banks are unwilling to lend to any but their biggest clients, so the vast majority of smaller businesses must rely on informal lending.
Mainland China's Shanghai Composite Index plummeted 5 percent to 1,968.51 while the smaller Shenzhen Composite Index plunged 6.1 percent to 881.87.
The drop unsettled European markets, where Britain's FTSE 100 fell 0.6 percent to 6,077.58 and France's CAC-40 slid 1.1 percent to 3,616.81. Germany's DAX was down 0.7 percent to 7,732.27 after a key business sentiment index rose slightly, suggesting the recovery in Europe's largest economy continues, though at a slow pace.
Wall Street also appeared headed for losses, with Dow Jones industrial futures down 0.6 percent to 14,624. S&P 500 futures lost 0.7 percent to 1,573.30.
Analysts at Moody's Investors Service said that they saw the Chinese central bank's action as "having been the result of a conscious decision" to curb credit growth.
