Obama bank plans roil world stocks

"President Obama's words are still very much hanging over the market," said equities dealer Arifa Sheikh-Usmani at British trading firm.

LONDON, January 22, 2010 (AFP) - Global stock markets slid in confusion on Friday at US President Barack Obama's vow to crack down on "reckless" big banks and on jitters over China's economy and soaring debts, analysts said.

In foreign exchange trade, the yen rose against the dollar, boosted by "safe-haven" flows as prospects for the global economy dimmed in light of recent economic data and moves by governments to curb lending, dealers said.

Oil prices rose slightly with gains capped by weak energy demand in the United States and worries over the strength of China's economy, the world's biggest energy-consuming nations.

"President Obama's words are still very much hanging over the market," said equities dealer Arifa Sheikh-Usmani at British trading firm Spreadex.

Obama laid out a tough programme on Thursday to limit "excessive" risk-taking and "protect" US taxpayers by preventing banks or financial institutions from owning, investing in or sponsoring hedge fund or private equity funds.

"Never again will the American taxpayer be held hostage by a bank that is too big to fail," vowed Obama.

Blaming the banks for causing the economic crisis, he said: "My resolve to reform the system is only strengthened when I see a return to old practices at some of the very firms fighting reform."

However, experts and analysts on financial markets were varied in their views of whether the measures proposed by Obama were appropriate and would have the desired effect.

In European stock market trade approaching Friday's half-way mark, London's benchmark FTSE 100 index was down 0.46 percent in value. Frankfurt's DAX 30 slid 0.56 percent and the Paris CAC 40 lost 0.52 percent.

The Tokyo stock market closed down 2.56 percent, Sydney shed 1.59 percent and Hong Kong recovered from early heavy losses to finish 0.65-percent lower.

Investors followed the lead of Wall Street, where the Dow Jones index suffered its worst fall of the year on Thursday.

The Dow Jones Industrial Average slumped 2.01 percent, posting its biggest drop for the year and extending losses after a big fall on Wednesday.

Obama's words meanwhile capped a tough week for markets, which have taken a hit also from fears that Beijing is set to tighten credit as it tries to rein in its scorching economy.

Those worries were stoked on Thursday after China said its economy expanded 10.7 percent in the December quarter, while inflation reached a 13-month high.

Shanghai stocks dropped 0.96 percent on Friday.

"We had a weak lead (in Asia) from Wall Street on the potential moves from China to slow things down, and Mr Obama is going forward on bank regulation," Burrell Stockbroking director Richard Herring said.

"We had a good run over the Christmas period, so maybe there's just a little unwinding of some Christmas excess."

In foreign exchange deals on Friday, the dollar fell to 90.38 yen from 90.50 late in New York on Thursday.

In oil deals, New York's main contract, light sweet crude for March delivery, climbed 11 cents to 76.17 dollars a barrel.

Brent North Sea crude for delivery in March gained 22 cents to 74.80 dollars a barrel.

The concern with China came against a backdrop of investor nerves over the global economy as a whole, with the IMF and the United Nations this week both warning of a possible "double-dip recession" this year.

Those worries have been heightened in Europe, where several governments are struggling to cope with rising debt levels. Debt troubles in countries like Greece and Portugal have also dragged down the euro against the dollar.

There was some good news for the stock markets, as influential US banking giant Goldman Sachs on Thursday reported higher-than-expected fourth-quarter and full-year profit despite the downturn.