China markets lead share declines

Rises in food prices are helping to push inflation higher

Chinese shares have suffered their biggest one-day fall since August last year because of fears that the government may increase interest rates.

The Shanghai Composite index closed down 5% because of fears that the government would introduce further measures to try to control inflation.

Figures released on Thursday showed the rate had reached a two-year high.

The speculation, along with heightened fears about the Irish Republic’s debt problem, also hit other Asian markets.

In Hong Kong, the Hang Seng index was down 1.9%. Japan’s Nikkei index was down 1.4%.

Some analysts have suggested the Chinese government could act in the coming days.

“There are some rumours there might be another interest rate hike this weekend,” said Linus Yip from First Shanghai Securities in Hong Kong.

China’s inflation in October reached a higher-than-expected 4.4%, up from September’s 3.6%, largely due to rises in food prices.

This was despite recent government efforts to dampen price rises and cool its rapidly growing economy through earlier interest rates rises and by introducing limits on bank lending.

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