Stocks fell, extending a second straight weekly drop for benchmark indexes, after China told banks to set aside more reserves in an effort to curb inflation. The euro and bonds of Europe’s most-indebted nations gained for a third day as Ireland indicated it’s ready to accept aid. The Standard & Poor’s 500 Index lost 0.2 percent at 9:32 a.m. in New York and the MSCI World Index slipped 0.3 percent, with both gauges down more than 0.4 percent this week. The euro appreciated 0.2 percent to $1.3671 for a third straight gain against the dollar. The 10-year Irish bond yield dropped three basis points to 8.09 percent. Oil slipped 0.5 percent to $81.45 a barrel after rising as much as 1.1 percent. U.S. equities followed European shares lower after the People’s Bank of China said it will increase the ratio requirement for the nation’s banks by 50 basis points from Nov. 29, according to its website. Optimism that a European Union bailout for Ireland will limit contagion across Europe’s larger debt markets has helped drive the euro higher this week. Federal Reserve Chairman Ben S. Bernanke defended his monetary stimulus, saying it will aid the world economy. “There’s heightened awareness of inflationary pressures within emerging markets,” said Hayes Miller, the Boston-based head of asset allocation in North America at Baring Asset Management, which oversees about $50.6 billion. “The worry is that any kind of tightening may have unintended consequences. Any piece of data in the mosaic of inflation in emerging markets is going to be scrutinized heavily. It’s still a risk-on, risk- off story.” U.S., Europe Stocks The S&P 500 erased some of yesterday’s 1.5 percent rally, the biggest gain in two weeks. Dell Inc., the world’s third- largest supplier of personal computers, jumped 3.2 percent in pre-market trading after reporting earnings that beat analysts’ estimates. More than two stocks fell for every one that rose on the Stoxx 600. Banco Santander SA lost 2.8 percent and Rio Tinto Group slid 1.6 percent. Zodiac Aerospace SA slumped 6 percent after Safran SA said it has decided not to bid for the company. Corio NV slipped 1.5 percent as Morgan Stanley downgraded the property developer. The MSCI Emerging Markets Index fluctuated. Poland’s WIG 20 Index extended declines, dropping 1.2 percent. Russia’s Micex slipped 0.4 percent, reversing earlier gains. ‘Tackling Its Problem’ China’s Shanghai Composite Index advanced 0.8 percent before the announcement. The gauge retreated 3.2 percent this week as concern deepened that the government will tighten monetary policy to curb the fastest inflation in two years. China’s central bank will raise its benchmark lending rate by the end of December, according to analysts at nine banks surveyed this week by Bloomberg News. “China is tackling its problem of inflation stemming from large money inflows,” said David Macia, a money manager for Credit Andorra’s asset management unit in Andorra, which oversees about $6 billion. “This is not unique to China, but to the whole emerging world. They are trying to control prices and they will slow down the current engine of growth in the world.” The euro appreciated against all but one of its most-traded counterparts, advancing 0.1 percent to 114.11 yen. The Dollar Index, which tracks the U.S. currency against those of six trading partners, dropped 0.2 percent to 78.479, falling for the third consecutive day. Irish Bailout The extra yield that investors demand to hold Irish 10-year debt instead of benchmark German bunds decreased six basis points to 535 basis points, down from an all-time high of 652 basis points last week. The gap between Portuguese bonds and bunds rose four basis points to 408 basis points, after soaring to a euro-era record of 484 basis points on Nov. 11. “There is no doubt that a deal on a financial aid package for Ireland will be reached, possibly at some stage over the next week, and this has helped turn euro sentiment more favorable,” Derek Halpenny, European head of global currency research at Bank of Tokyo-Mitsubishi UFJ Ltd. in London, wrote in a report today. The 10-year U.S. Treasury yield was little changed at 2.90 percent. The yield on the two-year Treasury note rose less than one basis point to 0.51 percent. The best way to underpin the dollar and support the global recovery “is through policies that lead to a resumption of robust growth in a context of price stability in the United States,” Bernanke said in a speech in Frankfurt today. Countries that undervalue their currencies may eventually inhibit growth around the world and risk financial instability at home, he said. The Fed is scheduled to buy $1.5 billion to $2.5 billion of government debt maturing from August 2028 to November 2040 today as part of its so-called quantitative-easing plan. To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net.

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