EUROPE MARKETS: China Rate Move Rattles Europe's Resource Stocks

By Barbara Kollmeyer

MADRID (MarketWatch) -- European stock markets fell on Tuesday, with nearly all sectors in the red by the afternoon, and led lower by resource stocks, which fell after a surprise rate hike by China. Tech stocks and U.S. earnings news also weighed on bourses in the region.

The Europe Stoxx 600 index slipped 0.2% to 266.03, after a rise of 0.3% on Monday. Losses were softened slightly after news of a 0.3% gain in U.S. housing starts in September, stronger than economists expected and the highest level since April.

U.S. stock futures pointed to a much weaker Wall Street open as the market absorbed a wave of key earnings and the China hike. The quarter-point hike in China's deposit and lending rates was not expected until early next year.

"If you're tightening the belt, it's the same as saying inflation is too high and activity is too high," said Christian Tegllund Blaabjerg, chief equity strategist at Saxo Bank. "You want to dampen things before they get overheated. Resource stocks are the first to get hit."

"It is good news for the U.S., though, because it's a de-facto appreciation of the Chinese currency, even though it's a small one," he said.

Resources fell on the news that any attempt by China to slow growth means it won't be buying as many raw materials to fuel that growth. The news hit both the Australian and New Zealand dollars, with both countries heavily involved in commodities exports.

December gold futures fell nearly $16 to $1,356.60 an ounce, while November crude-oil futures dropped $1.14 to $81.99 a barrel.

It also drubbed resource stocks in Europe.

In London, miners such as Xstrata PLC fell 3.8%, Fresnillo PLC slid 2.4%, Vedanta Resources PLC lost 2.4% and Rio Tinto (RIO) fell 2.2%.

The FTSE 100 index fell 0.2% to 5,730.42.

Also weighing on the downside in London, shares of ARM Holdings PLC fell 2.3%. Tech giants Apple (AAPL) and IBM (IBM) posted better-than-forecast results on Monday, but shares fell in after-hours trading. Apple disappointed over its outlook and iPad sales, while for IBM the focus was on a fall in new contracts.

However, that was balanced by a 2.7% gain for Autonomy Corp. . The company said third-quarter profit rose 22% on a sales gain of 9.9%. Autonomy sees "upside" to the current market consensus for 2011 earnings.

In Paris, the CAC 40 index fell 0.3% to 3,824.75, with shares of Total SA (TOT) off 1.5% and tech stocks also weak there, with Capgemini down 1.2% and Alcatel-Lucent off 1.1%.

Banks remained a bright spot for Europe amid a wave of key U.S. earnings, such as Goldman Sachs (GS) and Bank of America (BAC). Goldman topped expectations for earnings per share, while Bank of America's loss widened.

Banks were drawing additional support after the Basel Committee on Banking Supervision said it will let major European banks comply with new rules on liquidity gradually over an "observation" period.

In Paris, shares of Societe Generale SA rose 2.6% and Natixis SA added 2.7%.

On the upside, shares of Royal Bank of Scotland (RBS) rose 2.4% and shares of Barclays PLC (BCS) added 1.6%.

Deutsche Bank (DB) rose 2.2% and Commerzbank was up 1.2%, though the German DAX 30 index stayed weak, off 0.3% to 6,498.85.

Shares of Munich Re gained nearly 0.7% on news that Warren Buffett's Berkshire Hathaway Inc. (BRKA) lifted its stake in the reinsurer to more than 10% and said it would buy more shares over the next year.

Weighing on the downside in Germany, Infineon Technologies AG fell 2.1% and SAP AG (SAP) lost 1.3%.

On the economic side, the ZEW German investor sentiment indicator fell slightly more than forecast in October, to -7.2 from -4.3 in September. ZEW said another decline for economic sentiment shows that growth will likely slow in the next six months.

Blaabjerg said those numbers surprised him a bit. "Sentiment is moving in the wrong direction. I've been saying for a long time that you should look for Germany if you want to have a clue on where Europe is going," he said, adding that Germany is probably the only country holding up Europe right now.