Chinese bank moves to slow inflation

The bank said small, rural banks would be exempt from the order to increase the reserve ratio requirement half a percentage point to 16.5 percent, meaning a greater share of deposits would need to be kept in reserve at the central bank, where the funds earn little interest, The New York Times reported Friday.

More to the point, the funds become unavailable to lend to consumers and businesses. Less money in circulation tends to put downward pressure on prices.

In China, prices paid by producers jumped 4.3 percent in January, more than twice the increase in the previous month. Consumer prices rose only 1.5 percent in January, but housing prices have soared, rising 9 percent in a year in some large cities.

The move revealed how much U.S. investors have bet on steady economic growth in China through investment in businesses that have a large presence there.

The Dow Jones industrial average dropped 1.23 percent early Friday, while the Standard & Poor's 500 fell 1.1 percent. Commodity prices, banking on high demand from China, also dropped, the Times said.

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