China’s Central Bank Cut Banks’ Reserve- Boost Sentiments

European stock markets turned around a losing session in the afternoon to push higher after reports that China’s central bank cut banks’ reserve requirements for the first time in three years, driving up stocks dependent on the global-growth picture.

The reversal came as China’s central bank said it would lower banks’ reserve-requirement ratio by 0.5 percentage point in an attempt to boost the economy.

“We are looking at easier money within the global economy and that obviously is positive for equities,” said Peter Cardillo, New York-based chief market economist at Rockwell Global Capital.

“Given lower growth out of China and out of India, it is just a matter of time before we get back into a global easing policy,” said Cardillo, who expects the European Central Bank to cut interest rates next week.

Data released Wednesday showed that the Indian economy grew 6.9% year-on-year in the third quarter, its slowest rate in more than two years.

Stock futures had fallen earlier after Standard & Poor’s Ratings Services late Tuesday lowered its ratings on more than a dozen global banks, as the ratings company applied its revised criteria to 37 banks in total.

Investors will continue to watch developments in Europe closely. In Brussels, euro-zone finance ministers agreed late Tuesday to approve the next disbursement of aid to Greece. They also agreed to expand the euro-zone bailout fund, but didn’t provide a specific figure on its projected size.

Meanwhile, finance ministers from all 27 European Union member nations are meeting in Brussels on Wednesday.

“The markets are still pretty much tied to the daily headlines out of Europe, although we are getting closer and closer to Europe fixing its problems,” Cardillo said. “Eventually, the European Central Bank will be the lender of last resort. We are headed in that direction.

Media reports said the People’s Bank of China has cut the reserve ratio for all banks by 0.5 percentage point, starting Dec. 5. It’s the first cut in that rate since December 2008.

The move is aimed at helping boost liquidity and support for China’s economy amid the debt crisis in Europe that is wreaking havoc across the globe, along with gloomy global-growth forecasts.