Markets suffer as China increases bank reserves

European stock markets fell this afternoon as China raised its bank reserve rate for the second time in a week in a bid to control inflation.

The People's Bank of China said it would increase the ratio by 50bp, the fifth such announcement this year. The move takes required reserve ratios (RRR) to 18.5%, a record high.

It comes after Chinese inflation hit a two-year high of 4.4% last week on the back of rapid economic growth.

Although the announcement was made after local bourses closed, European stock markets have reacted negatively to the news and concerns over the outcome of Ireland's bailout discussions.

At 1.50pm, the FTSE 100 was down 1.08% to 5,706.38 with Sage Group the biggest faller, declining 3.12% to 260.8p.

The China news hurt resource companies, with BHP Billiton dropping 2.52% to £23.05, Kazakhmys falling 2.04% to £14.40 and Rio Tinto losing 2% to £41.96.

Meanwhile, banking shares suffered over lingering uncertainty on Ireland's debt.

Standard Chartered was the biggest loser, down 2.75% to £18.01, while Lloyds dropped 2.21% to 66.29p and Barclays declined 1.73% to 273.15p.

In Europe, France's CAC 40 was down 0.59% to 3,845.17 while Germany's Dax fell 6,816.81.