China rate cut sparks fears of grim May data

Fri Jun 8, 2012 7:02am EDT
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By Nick Edwards

BEIJING (Reuters) - Global cheers over China's decision to cut interest rates faded on Friday as investors and economists worried that the move signaled the impending release of grim economic data.

China's surprise rate cut unveiled on Thursday boosted hopes that cheaper credit would help combat its faltering economic growth, and it encouraged global share markets in their belief that the major economies were stepping up stimulus.

But the central bank's cut, the first since the global financial crisis in late 2008, also raised concerns the economy may be weaker than previously thought.

Asian shares lost ground on Friday, worried that a deluge of May Chinese data due this weekend could produce ugly numbers.

Reuters polls published earlier in the week suggested the world's second-largest economy probably showed signs of stabilizing last month from a surprisingly weak April.

Now, those expectations are in doubt.

"The rate cut should have been a positive but it comes at suspicious timing," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley in Tokyo. "It makes people think that really bad news is going to be unleashed this weekend."

The People's Bank of China (PBoC) cut the official one-year borrowing rate by 25 basis points to 6.31 percent, and the one-year deposit rate by a similar amount to 3.25 percent.   Continued...

Different values of China's yuan banknotes are placed on a window sill as Shanghai's skyscrapers are seen in the background, in this April 15, 2012 file photo illustration taken in Shanghai. REUTERS/Petar Kujundzic/Files