Markets tumble on China inflation worry

The Toronto stock market closed sharply lower Friday on worry that the Chinese government will be forced to take further steps to slow the country's economy.

The S&P/TSX composite index, which includes many commodity-producing companies, ended the day down 185.5 points, or 1.4 per cent, to 12,749.2

American markets were also lower.

The Dow Jones industrial average lost 90.52 points, or 0.8 per cent, to 11,192.58, while the Nasdaq composite index lost 37.31 points, or 1.5 per cent, to 2,518.21 and the S&P 500 index fell 14.33, or 1.2 per cent, to 1,199.21.

The Canadian dollar lost 0.90 of a cent from Wednesday's close to end at 99.10 cents US.

The December crude contract on the New York Mercantile Exchange was down $2.93 at $84.88 US a barrel, and the December bullion contract was lower by $37.80 at $1,365.50 US an ounce.

Traders were concerned the Chinese government would take further steps to curb lending since data released Thursday showed that inflation hit a 25-month high in October.

"There are some rumours there might be another interest rate hike this weekend," said Linus Yip, a strategist for First Shanghai Securities in Hong Kong.

The speculation sent Chinese markets sharply lower, with the Shanghai composite index plunging 5.2 per cent while the Shenzhen composite index for China's smaller second exchange slumped 6.1 per cent.

Any slowdown would be expected to affect what has been heavy Chinese demand for oil and minerals.

Irish deficit also a concern

"People have been asking, with the move that we've seen in energy and commodity prices in general, well, what are the clouds, the risks, " said Norman Raschkowan, North American strategist at Mackenzie Financial Corp.

"And China acting more aggressively to slow down its economy is clearly one of the risks to that outlook."

The U.S. dollar gained strength against the loonie and the euro amid mounting speculation that Ireland — one of Europe's most financially troubled countries — would not be able to cut public spending and may have to resort to a bailout.

Traders have been dumping Ireland's sovereign bonds on fears that new European Union rules being discussed will force investors to take on heavier losses in case of a bailout.

The debt crisis eased somewhat Friday after the finance ministers of Germany, France, Italy, Spain and Britain stressed in a joint statement that the EU's proposed new bailout mechanism "does not apply to any outstanding debt."