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Markets temper enthusiasm after Japan stimulus

Friday - 1/11/2013, 10:36am  ET

A man walks by the electronic stock board of a securities firm in Tokyo, Friday, Jan. 11, 2013. Japan's Nikkei stock index gained 1.2 percent to 10,780.45 Friday after Prime Minister Shinzo Abe announced a massive spending package intended to breathe life into the country's moribund economy. (AP Photo/Itsuo Inouye)

AP Business Writer

PARIS (AP) -- A massive spending package meant to reinvigorate Japan's economy briefly boosted world markets Friday, but new figures showing a rise in Chinese inflation and old worries about the world economy quickly brought most stocks back down.

Japan's Nikkei stock index soared after Japanese Prime Minister Shinzo Abe announced an anti-recession stimulus package of more than 20 trillion yen ($224 billion) that is intended to add 2 percentage points to Japan's growth.

The news also lifted other markets, but only briefly. Later in Europe, investors were tempering their enthusiasm as concern remains about the state of the world economy.

New data showed Friday that price increases are accelerating in China, the world's second-largest economy. The inflation rate rose to 2.5 percent in December from 2 percent the previous month, due partly to a jump in food prices.

"The rise is disappointing as traders were hoping that policy officials may introduce new measures to help stimulate the Chinese economy," said Shavaz Dhalla, a trader with Spreadex. "Cleary rising prices could act as a barrier for officials as there is now the fear that more stimulus measures could cause the current inflation figures to rocket."

European countries are also facing their own uphill battle to restore economic growth. The economy of the 17 European Union nations that use the euro is in recession, and unemployment is soaring across the region.

Analysts said that some traders may have also been selling off shares to book profits ahead of the weekend.

In France, the CAC-40 fell 0.3 percent to 3,691, while Germany's DAX was down 0.1 percent at 7,700. The FTSE index of leading British shares edged up 0.1 percent at 6,109.

Wall Street was down just after the open. The Dow Jones industrial average fell 0.2 percent to 13,449, while the broader Standard & Poor's index dropped 0.3 percent to 1,468.

Earlier in the day, the Nikkei closed 1.4 percent higher at 10,801.57.

But not all Asian markets rallied, hemmed in by concerns about inflation in China. Hong Kong's Hang Seng fell 0.4 percent to 23,264.07. South Korea's Kospi lost 0.5 percent to 1,996.67. Australia's S&P/ASX 200 shed 0.3 percent to 4,709.50. Benchmarks in Singapore and mainland China also fell while those in the Philippines and New Zealand rose.

Amid persistent concerns about the health of the world economy, energy prices fell.

Benchmark oil for February delivery was down 93 cents to $92.89 per barrel in electronic trading on the New York Mercantile Exchange.

Only the euro was holding its own, rising to $1.3333 after the European Central Bank's decision Thursday to leave its interest rate at the record low of 0.75 percent. In a press conference, ECB President Mario Draghi said the eurozone economy should start to grow again later this year.


Pamela Sampson contributed to this report from Bangkok.

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