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Chinese rate hike rattles Asian shares

Singapore - Asian stock markets mostly fell on Friday amid caution over possible interest rate hikes in China that could dent the country's contribution to the global economic recovery.

The down session in Asia came after mixed trading on Wall Street as traders waited to see whether a tax compromise brokered by the White House and Republicans will pass the Democratic-controlled House.

Investors in the region were anxious about the possibility of a rate hike on Friday by China's central bank as authorities step up measures to combat rising inflation. Tighter monetary policy would slow China's rapid growth, one of the few sources of strong demand for Asian exporters amid sluggish expansions in the US and Europe.

Credit Suisse expects Chinese policymakers to raise the one-year deposit rate by 2.25 percentage points and the lending rate by 2.10 percentage points over the next year to help contain inflation that will likely peak in 2011 at 5.3% and average 4% during the next decade.

"The market and decision makers must go through an adjustment period, which has now begun," Credit Suisse said in a report.

"Monetary policy stance must now return to normal."

Despite the rate hikes, China's economy will likely grow 9.2% next year and 9% in 2012, Credit Suisse said.

Japan's Nikkei 225 stock average lost 0.5% to 10 234.50 as investors settled December futures and options contracts. Carmakers fell, with Toyota Motor down 0.5%.

South Korea's Kospi slipped 0.3% to 1 983.04, losing steam after jumping 1.7% the previous day. Investors unloaded blue-chip exporters like Samsung Electronics, which eased 0.4%.

Hong Kong's Hang Seng index dropped 0.7% to 23 014.50 and benchmarks in Singapore and Taiwan also fell. Australia's S&P/ASX 200 fluctuated in and out of negative territory.

The Shanghai Composite index added 0.1% to 2 814.88. India's main stock index rose.

Worries about Europe also pressured sentiment. The Fitch ratings agency dropped Ireland's credit-risk score three notches to BBB-plus, citing the country's massive bailout as an admission that its debt crisis was worse than advertised.

In New York on Thursday, stocks closed mixed. They had edged higher in the morning after a report from the Labour Department showed that first-time claims for unemployment benefits dropped last week to the second-lowest level this year.

The Dow Jones industrial average fell 2.42, to 11 370.06. The broader Standard & Poor's 500 index rose 4.72, to 1 233, while the Nasdaq composite index rose 7.51, to 2 616.67.

In currencies, the dollar was little changed at ¥83.67 from ¥83.71 on Thursday. The euro rose to $1.3251 from $1.3231.

Benchmark oil for January delivery was up 14 cents at $88.51 a barrel in electronic trading on the New York Mercantile Exchange. The contract added 9 cents to settle at $88.37 on Thursday.

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