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Originally published Wednesday, January 20, 2010 at 6:27 AM

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Chinese policy fears temper European stock gains

European stocks edged up Thursday after a late recovery on Wall Street the previous session, but fears of tighter monetary policy in China kept a lid on the advance.

AP Business Writer

LONDON —

European stocks edged up Thursday after a late recovery on Wall Street the previous session, but fears of tighter monetary policy in China kept a lid on the advance.

Despite the moderate equity gains, however, the euro continued to slide amid poor economic data and concerns about Greece's debt burden.

The FTSE 100 index of leading British shares was up 11.94 points, or 0.2 percent, at 5,432.74 while Germany's DAX rose 14.06 points, or 0.2 percent, at 5,865.59. The CAC-40 in France was 15.25 points, or 0.4 percent, higher at 3,944.20.

"Yesterday's bruising session in Europe looks set to find some respite after sentiment on Wall Street found some support during the afternoon session," said Ben Potter, research analyst at IG Markets.

On Wednesday, stocks around the world took a battering amid fears of further lending curbs in China and a mixed U.S. corporate earnings. At one point, the Dow Jones industrial average had fallen by over 200 points - its worst performance for months. But some late buying helped it end 122.28 points, or 1.1 percent, lower at 10,603.15.

A subdued open is expected later on Wall Street - Dow futures were down 12 points, or 0.1 percent, at 10,545 while the broader Standard & Poor's 500 futures were unchanged at 1,134.

However, the actual performance at the open will likely hinge on further fourth-quarter U.S. corporate earnings figures from the likes of American Express Co., Goldman Sachs Group Inc. and Google Inc.

So far, earnings have been mixed, especially from banks, which have dominated the headlines this week.

Investors are increasingly concerned that stock market valuations following a ten-month bull run are not justified by current earnings and future expectations.

Recent economic data has not helped sentiment, either. Poor U.S. housing starts figures Wednesday contributed to the sharp sell-off while a survey Thursday indicated that the recovery in the 16 countries that use the euro may be running out of steam.

The monthly composite purchasing managers index - a closely watched gauge of business activity in both the manufacturing and services sectors - for the eurozone slipped to 53.6 in January from 54.2 the previous month.

Any reading above 50 does indicate an expansion in activity. However, the nearer to 50 the less marked the growth.

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Fears of a slowdown in what is already pretty anemic economic growth in the eurozone have added to the problems facing the euro, which has slid markedly over the last few days amid worries that Greece may default on its debt or even be compelled to leave the single currency zone.

By midmorning London time, the euro was down a further 0.3 percent at $1.4056, its lowest level since mid-August.

Earlier, most Asian markets declined as China posted double-digit economic growth, reinforcing market expectations that the monetary authorities in the country will be tightening policy to keep a lid on any inflationary pressures.

China said its economy grew 10.7 percent in the fourth quarter from the year before and 8.7 percent for all of 2009 - at the top end of market expectations.

The dizzying growth, along with government figures showing inflation on the rise, means China is likely to take additional measures to rein in bank lending and remove extra money from the system to help cool the economy.

However, the markets remain uncertain about what steps China will take to handle challenges like asset bubbles, inflation and currency imbalances.

"Investors are concerned about how China is going to deal with the situation. The bottom line is they don't know what to expect and what the effects will be on the economy and the region," said Thomas Lam, group chief economist at financial services firm OSK-DMG in Singapore.

Hong Kong led Asia's declines, with the Hang Seng falling 423.50 points, or 2 percent, to 20,862.67. Taiwan's index fell 1.1 percent and Australia's benchmark lost 0.8 percent. Singapore's market slid 1.4 percent.

Bucking the region's declines was Japan, where the Nikkei 225 stock average rose 130.89 points, or 1.2 percent, to 10,868.41 on gains in technology stocks. South Korea's Kospi was up 0.5 percent.

Shanghai's benchmark recouped losses to close up 7.01 points, or 0.2 percent, to 3,158.86.

Oil prices fell further, with benchmark crude for March delivery down 35 cents to $77.39 a barrel. The contract fell $1.58 to settle at $77.74 on Wednesday. The February contract expired Wednesday, ending down $1.40 at $77.62.

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AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.

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