NEW YORK (Reuters) - Global equity markets fell on Friday on reports about a crackdown on margin lending in China, while the dollar retreated on views that stronger U.S. consumer prices were not enough to offset recent weak data that could slow a Federal Reserve interest rate hike.
China's securities regulator warned investors to be cautious as Chinese shares hit seven-year highs after seven weeks of gains. Retail investors are borrowing record amounts of money to buy stocks, pushing trading volumes to new highs.
China on Friday also allowed fund managers to lend stocks for short-selling and expanded the number of stocks investors can short to increase the supply of securities in the market.
Stocks in Europe and on Wall Street fell more than 1 percent on the China news and on worries Greece may run out of money as debt repayments loom. Peripheral euro zone government debt yields rose while core German bund yields set a record low.
A two-hour outage at news and market data provider Bloomberg LP also hit financial markets in Europe, prompting debt sales to be postponed and exacerbating a spike in volatility in European stocks.
Prospects have dimmed that Athens can strike a reform deal at a meeting next Friday to unlock much-needed bailout funds.
"China in general has been tightening up on some of the excesses in lending," said Rick Meckler, president of hedge fund LibertyView Capital Markets in Jersey City, New Jersey. "It's just another area that makes people think globally there's a bit of a top to this recent rally."
MSCI's all-country world index of equity performance in 46 countries fell 0.92 percent, while the FTSEurofirst 300 index of top European shares closed down 1.8 percent at 1,607.03. Germany's DAX fell 2.6 percent.
Traders said the European and U.S. sell-off was worsened by the expiry of futures and options in Europe and options in the United States. Disappointing corporate reports on both sides of the Atlantic also weighed on the market.
The Dow Jones industrial average fell 279.47 points, or 1.54 percent, to 17,826.30. The S&P 500 slid 23.81 points, or 1.13 percent, to 2,081.18 and the Nasdaq Composite lost 75.98 points, or 1.52 percent, to 4,931.81.
U.S. consumer prices rose 0.2 percent in March, propelled by higher costs for gasoline and housing. Closely watched core consumer prices rose 1.8 percent year-on-year, inching closer to the Fed's 2 percent target.
The dollar headed for its worst week in four against a basket of major currencies after the rising pace of inflation failed to ease concerns that a recent spate of weak U.S. economic data could slow Fed plans to raise rates for the first time in almost a decade.
The greenback fell 0.12 percent to 118.87 yen. The euro rebounded, rising 0.48 percent at $1.0812. The dollar index also retreated, falling 0.02 percent at 97.397.
"The markets feel that the small price increase is not enough to force a June rate increase," said Chris Gaffney, president of EverBank World Markets in St. Louis.
U.S. Treasury prices rebounded.
Benchmark 10-year notes were last up 3/32 in price, pushing their yield down to 1.8653 percent. The yield on 10-year German bunds fell to an all-time low of 0.05 percent.
Brent crude pared early losses to rally above $64 after military units protecting the largest oilfields in Yemen handed over security to armed local tribes in a sign of the weakening grip of the Yemeni state over its resources.
Brent crude for June settled down 53 cents at $63.45 a barrel. U.S. crude for May fell 97 cents to settle at $55.74 a barrel.
Reporting by Herbert Lash; Editing by Meredith Mazzilli, Chizu Nomiyama and Dan Grebler