STOCK MARKET WATCH -- Friday, 13 January 2012

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32. Dip in China's FX reserves may hasten policy shift

http://uk.reuters.com/article/2012/01/13/us-china-economy-reserves-idUSTRE80C0DA20120113?type=GCA-Davos

(Reuters) - China's official reserves slipped to $3.18 trillion in the final quarter of 2011, signaling that the days of rampant export-led accumulation of foreign currency are numbered and that new monetary policy steps may be needed to counter capital outflows.

The People's Bank of China published data on Friday showing a $20.6 billion, or 0.6 percent, fall in reserves in the final three months of the year, though Beijing's stash of foreign wealth is still by far the world's largest.

Reserves dropped in November and December, the first consecutive monthly fall since the first quarter of 2009, a clear sign of the impact that a falling trade surplus and an outflow of speculative funds is having on China's capital flows.

And while the quarterly fall does not signal massive capital flight from China, analysts say it does argue for Beijing to further lower the amount of cash it makes banks hold as reserves to ensure sufficient market liquidity.