2010-06-10 11:00

Europe concern

Fitch Ratings said on Tuesday the United Kingdom faces a "formidable" fiscal challenge. Global investors have little confidence in Europe's efforts to contain its debt crisis, a quarterly poll of investors and analysts who are Bloomberg subscribers showed.

Banks have announced plans to raise at least 300 billion yuan by selling shares and bonds to meet tougher financial guidelines after an unprecedented 9.59 trillion yuan of new loans last year weakened their capital.

Agricultural Bank of China Ltd received formal, unconditional approval for its listing in China from the country's securities regulator, Reuters said, citing three unidentified people close to the deal.

China Cosco Holdings Co, the nation's largest container line, added 1.6 percent to 9.89 yuan. PetroChina Co, the country's biggest energy company, advanced 2.1 percent to 10.60 yuan.

Effects of CPI

"Tomorrow, shares may drop when investors get over happiness about the exports and start to consider the effects of higher-than-expected CPI," Monika Yang, who helps oversee $2 billion at Hamon Asset Management Ltd in Hong Kong, said. Accelerating inflation "increases pressure for China government to raise the value of the yuan, which will affect the exports negatively in future, and exports are a huge part of the economy", Yang said.

Besides maintaining one-year benchmark interest rates at crisis levels of 5.31 percent for lending and 2.25 percent for deposits, China has kept the yuan pegged at about 6.83 per dollar since July 2008. Investors buying yuan forwards may begin betting on declines by the Chinese currency against the dollar over the next year as the euro tumbles, according to Royal Bank of Scotland Plc.

The economy still doesn't have a "solid" recovery in domestic demand and must sustain consumer spending growth, the central bank said in a statement on its website on Tuesday. Growth will be affected by the sovereign-debt crisis and trade frictions, the People's Bank of China said.

Europe is China's biggest export destination, making up 20 percent of total overseas sales.

Bloomberg News