By V. Phani Kumar, MarketWatch , Shri Navaratnam and Leslie Shaffer
HONG KONG (MarketWatch) –- Indian shares declined to lead most Asian markets lower Tuesday after the country’s central bank raised interest rates more sharply than many had expected.
Mainland Chinese stocks defied the trend to edge higher after a three-day weekend as monetary-tightening measures anticipated during the holiday failed to materialize.
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Hong Kong’s Hang Seng Index /zigman2/quotes/210598030/delayed HK:HSI +2.57% fell 0.4% to 23,633.25.
Australia’s S&P/ASX 200 /zigman2/quotes/210598100/delayed AU:XJO +0.46% dropped 0.8% to 4,784.60, South Korea’s Kospi fell 1.3% to 2,200.73 and Taiwan’s Taiex gave up 0.7% to 8,946.08.
China’s Shanghai Composite /zigman2/quotes/210598127/delayed CN:SHCOMP +1.78% rose 0.7% to end at 2,932.19.
The broad declines came as investors scaled back bets on risky assets amid extended losses for many commodities. In addition, European Central Bank Vice President Vitor Constancio said Monday that restructuring Greek debt isn’t an option, renewing doubts over the euro zone’s ability to manage its trouble spots.
“Osama Bin Laden’s death was overshadowed by renewed concern about European sovereign debt, particularly in relation to Greece,” said RBS Morgans investment adviser Chris MacDonald in Sydney.
Markets in Japan were closed for a public holiday.
Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.01% futures were down 24 points in screen trade.
The Sensex , which was volatile ahead of the Reserve Bank of India’s decision, fell sharply after the central bank raised its policy interest rates by 0.5 percentage point to bring inflation under control. The index was down 2% at 18,617.91 in afternoon trading.
“Current elevated rates of inflation pose significant risks to future growth. Bringing them down, therefore, even at the cost of some growth in the short run, should take precedence,” RBI Gov. Duvvuri Subbarao said in his statement announcing the decision.
Arun Kejriwal, director at Kejriwal Research & Investment Service in Mumbai, said that while some analysts had anticipated a 0.5-point rate rise, the comments signaled that the RBI had become hawkish. “[Investors] are now faced with a dilemma. Inflation is not coming under control,” he said.
Several interest rate-sensitive stocks fell after the RBI move, with Tata Motors Ltd. /zigman2/quotes/209145303/composite TTM +0.16% /zigman2/quotes/209236910/delayed IN:500570 +1.90% falling 4.2% and real estate major DLF Ltd. /zigman2/quotes/203573600/delayed IN:532868 +1.76% lost 2.7%.
Banks were also hit by the RBI’s decision to increase the interest rates on savings-bank deposits to 4% from 3.5%, and to increase the money lenders must set aside as protection against certain types of bad loans.