LONDON (AFP) – The dollar slumped on Wednesday following a report thatChina may slow or halt its purchases of US government bonds, with WallStreet stocks also opening lower.
Bloomberg News reported that officials reviewing China s foreign-exchangeholdings have recommended slowing or halting purchases of US Treasuries,citing people familiar with the matter.
The dollar tumbled against the euro, which shot up above $1.20, and againstthe yen.
“If the reports turn out to be true and China no longer sees Treasuries asan attractive option, the repercussions could be significant as the countryis one of the biggest holders of US debt,” said Craig Erlam, senior marketanalyst at currency trading firm OANDA.
Fewer Chinese purchases of US bonds would likely see interest rates paid toattract buyers climb higher, and thus the US Federal Reserve would haveless need to hike rights.
“The tightening effect of such measures would likely have an impact on howmany times the Federal Reserve raises interest rates this year, which iswhy we ve seen a corresponding drop in the dollar,” said Erlam.
A senior US official downplayed the impact of possible scaledown of Chinesepurchases of Treasuries.
“The US treasury market is a deeply robust market within the world (and)with our economy strengthening it will remain a deeply robust market,” USUnder Secretary of the Treasury David Malpass said during a visit toBrussels.
Wall Street stocks, after closing at record highs on Tuesday, were on theback foot in Wednesday trading.
The Dow was down 0.2 percent in late morning trading.
Meanwhile in Europe, London s benchmark FTSE 100 index hit a recordintra-day high of 7,756.11 points. It closed the day up 0.2 percent at7,748.51.
In the eurozone, Frankfurt s DAX 30 dropped 0.8 percent and the Paris CAC40 shed 0.4 percent.
Elsewhere, a rally across Asia that welcomed in 2018 looked to have run outof steam with most markets slipping into the red on profit-taking, but HongKong rose for a 12th day as share prices in energy groups climbed against abackdrop of firming oil prices.
Hong Kong s main stocks index is now less than 900 points off its recordhigh of 31,958.41 hit in October 2007.
Shanghai finished up 0.2 percent, a ninth straight advance, but Tokyo ended0.3 percent down.*- Firm oil prices -*
Despite the losses on broader markets, energy firms stood out as oil pushedhigher.
Crude has more than doubled from its lows below $30 in early 2016,supported by an output freeze deal between OPEC and Russia and, recently,tensions in the oil-rich Middle East.
Market-watchers say unrest in key producer Iran could dent the country scapacity, while others point out that any suppression of protests by Tehrancould also lead Trump to reimpose export sanctions.
Oil futures have won support this week also from data showing a huge dropin US stockpiles as a big freeze in the northeast of the country fansdemand for heating fuel.
Data released Wednesday by the US Energy Department showed a drop of nearly5 million barrels, more than the 3.75 million barrels expected by analystssurveyed by Bloomberg.
Since late November US stocks of crude have fallen by around 37.5 millionbarrels, which has supported prices.