July 30, 2009 (FinancialWire) (By Philip Holmes) — Stocks ended down on Wednesday as investors reacted to a 5% plunge in the Shanghai Composite Index and noises that Chinese banks may soon pull back on lending. Big U.S. shares, including Chevron Corp. (NYSE: CVX), Yahoo and Caterpillar Inc. (CAT), also ended lower.

The Dow Jones industrial average shed 26 points, to end the trading session at 9,070.72. The Standard & Poor’s 500 Index lost 4.47 points, for a 975.15 close, while the Nasdaq Composite Index ended down 7.75 points, at 1,967.76.

In an alarming turn, the Shanghai Composite Index dropped 5% during Wednesday’s trading. Hong Kong’s Hang Seng shed nearly 2.4%. What investors in China and around the world are mulling are moves by leading Chinese banks to curb lending. This could hamper recovery in the larger global economy.

Chinese banks have been partying like U.S. banks were a few years ago. According to CNNMoney’s Paul R. La Monica, the country’s central bank, the People’s Bank of China, made 7.37 trillion yuan ($1.1 trillion) in new loans during the first half this year.

La Monica points out that Chinese banks “issued 4.91 trillion yuan in new loans during all of 2008. China’s lending target for all of this year had been just 5 trillion yuan.”

Now there is worry that Chinese banks may suffer the kind of spectacular busts that U.S. banks have experienced. The prudent course would be to cut back on lending, but this is exactly what the rest of the world doesn’t want to hear right now. Chinese investors don’t seem to happy about it, either.

But, as La Monica’s sources point out, a rise in loan losses at Chinese banks may cause China to sell off a share of the $800 billion in U.S. treasuries it now holds. Think of a Paulson/Geithner style bank bailout, only with a ready means of paying for it.

This could wreak havoc on the U.S. economy, in particular, as Treasury prices would plunge and interest rates would rise dramatically. Not a pretty picture.

Damned if they do and more damned if they don’t: if Chinese banks reign in lending it could hamper recovery; if they don’t, it could lead to another round of financial meltdown in the global economy.

The FirstAlert(tm) Events Calendar showcases MSFT Analyst Meeting; NWK, THMD, STRL, NG at CapStone Investments 3rd Annual Small Cap Investor Conference; PPHM, ECTE, NEOP at Jesup & Lamont Securities Growth Stock & National Sales Conference.

The FirstAlert(tm) “Money Index” is an indicator of the depth of market direction or indirection. While not always including the same stocks, the NYSE/NASDAQ/AMEX 25 Most Actives and NYSE/NASDAQ/AMEX greatest Percentage Losers and Percentage Winners (weighted against pure monetary loss/gain) indicate the direction in which the mass of money is flowing, as well as the general focus of the market. Of the Most Actives, last session’s trading showed 15 advancers versus 10 decliners. Volume leaders were led by Citigroup, Inc. (NYSE:C) trading 158,347,000 shares closing at $2.97 (up 10.4%), the SPDR Trust ETF (NYSE: SPY) trading 39,335,422 shares closing at $98.09 (down 0.3%) and the PowerShares QQQ Trust Series 1 (NASDAQ: QQQQ) trading 38,284,160 shares closing at $39.47 (up 0.3%). Of last session’s Greatest Percentage Losers, stocks taking the greatest monetary losses were led by Ametek Inc. (NYSE: AME) trading on volume of 685,600 shares (losing $493.7 million), Interpublic Group of Companies Inc. (NYSE: IPG) trading on volume of 6,802,200 shares (losing $365.7 million) and Office Depot, Inc. (NYSE: ODP) trading on volume of 5,710,800 shares (losing $272.2 million). Of last session’s Greatest Percentage Winners, stocks making the greatest monetary gains were led by SPSS Inc. (NASDAQ: SPSS) trading on volume of 2,118,754 shares (gaining $263.2 million), Veeco Instruments Inc. (NASDAQ: VECO) trading on volume of 1,109,468 shares (gaining $174.8 million), and Elron Electronic Industries Ltd. (NASDAQ” ELRN) trading on volume of 123,964 shares (gaining $33.8 million).

The statistical source for deriving each day’s The FirstAlert(tm) Money Index is StockSmart.com (http://www.stocksmart.com/ri/mostactive.staticdoc).

FirstAlert(tm) Website of the Day: http://www.museum.tv/archives/etv/D/htmlD/disneywalt/disneywalt.htm

Quote of the Day: “The key to being a good manager is keeping the people who hate me away from those who are still undecided.” Casey Stengel

Today is: Independence Day in Vanuatu, National Cheesecake Day.

Happy Birthday: Emily Brontë, Henry Ford, Sid Krofft, Casey Stengel, Bud Selig, Buddy Guy, Peter Bogdanovich, Paul Anka, Arnold Schwarzenegger, Delta Burke, Laurence Fishburne, Lisa Kudrow, Vivica A. Fox, Tom Green, Hilary Swank, Jaime Pressly.

Today in History: Christopher Columbus landed in 1502 at Guanaja in the Bay Islands off the coast of Honduras during his fourth voyage. At Ticonderoga (now Crown Point, New York) in 1608, Samuel de Champlain shot and killed two Iroquois chiefs, setting the tone for French-Iroquois relations for the next one hundred years. Baltimore, Maryland was founded in 1729. Walt Disney’s Flowers and Trees, the first Academy Award winning cartoon and first cartoon short to use Technicolor, premiered in 1932. Jimmy Hoffa disappeared in 1975 from the parking lot of the Machus Red Fox restaurant in Bloomfield Hills, Michigan, a suburb of Detroit, at about 2:30 p.m., never to be seen or heard from again.

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