JANUARY 21, 2010 (STAR)  World markets dropped Wednesday, led by a near 3 percent tumble in Shanghai's stock benchmark, as investors fretted about new curbs on the lavish bank lending that has driven China's economic revival.

The losses came despite Wall Street's gains on Tuesday, where the Dow Jones industrial average rose 1.1 percent to a 15-month high. Oil fell to near $78 a barrel while the dollar was stronger against euro and down against the yen.

As trading started in Europe, benchmarks in Germany, Britain and France were lower by about 0.2 percent. Futures augured a retreat Wednesday on Wall Street. S&P futures fell 3 points, or 0.3 percent, to 1,142.70.

In China, the Shanghai Composite Index dived 95.02, or 2.9 percent, to 3,151.85 following a newspaper report that some banks were ordered to cease lending for the rest of January after exceeding credit limits. That raised fears China's recovery could wane, undermining a fragile global economy.

The Chinese markets were already jittery following a speech Tuesday night by Premier Wen Jiabao that many interpreted as a sign the flow of easy credit will be stanched.

Some analysts say Beijing has already begun to take more steps to rein in stimulus-fueled liquidity. China earlier this month made a tentative move to slow bank lending.

Hong Kong followed Shanghai's lead with the Hang Seng dropping 391.81, or 1.8 percent, to 21,286.17.

Japan's Nikkei 225 stock average lost 27.38, or 0.3 percent, to 10,737.52. Japan Airlines slumped 60 percent to 2 yen after filing for one of the country's largest bankruptcies on Tuesday. JAL shares will be removed from the stock exchange on Feb. 20.

Singapore's market was off 0.7 percent, Taiwan retreated 0.3 percent and Thailand's stock measure lost 0.8 percent.

South Korea's Kospi shrugged off the regional fall, advancing 0.2 percent to 1,714.38 and Australia's stock measure crept higher by 0.1 percent.

In the US on Tuesday, the Dow rose 115.78, or 1.1 percent, to 10,725.43. The broader Standard & Poor's 500 index rose 14.20, or 1.3 percent, to 1,150.23. The technology-heavy Nasdaq composite index rose 32.41, or 1.4 percent, to 2,320.40.

Stocks have been climbing for 10 months on hopes that an easing recession would boost corporate profits. But lingering problems like high unemployment and a weak housing market in the US have raised questions about whether the rally has been overdone.

Earnings reports which can provide a guide to real demand in the economy are due this week from Bank of America Corp., eBay Inc., General Electric Co., Goldman Sachs Group Inc., Google Inc., Morgan Stanley and Wells Fargo & Co.

Results already released from corporate bellwethers have been a mixed bag.

Oil prices fell in Asia amid expectations a US crude inventory report will show demand for the commodity remains weak.

Benchmark crude for February delivery slid 72 cents to $78.30 in electronic trading on the New York Mercantile Exchange. The contract rose $1.02 to settle at $79.02 on Tuesday.

In currencies, the dollar fell to 90.81 yen from 91.11 yen. The euro fell to $1.4208 from $1.4291.

Chief News Editor: Sol Jose Vanzi

All rights reserved