The U.S. Federal Reserve rattled world markets by raising the rate it charges banks for emergency loans late Thursday in a possible sign of further stimulus unwinding.
World markets fell Friday after the Fed's unexpected move raised fears that regular borrowing costs could also move higher soon, slowing the recovery in the world's largest economy.
The central bank said it will bump up the "discount" lending rate by one-quarter point to 0.75 percent, part of a pullback of the extraordinary aid it provided to fight the financial crisis.
Although the Fed said the step should not be seen as a signal that it will soon boost interest rates for consumers and businesses, markets were spooked.
After sharp drops in Asia, Germany's DAX stock index was down 0.2 percent at 5,671.28 and Britain's FTSE 100 was flat at 5,326.84. France's CAC-40 fell 0.2 percent to 3,742.09.
Meanwhile, the sophisticated cyber-attacks disclosed by Google Inc. in January have been traced to computers at two educational institutions in China, the New York Times reported Thursday.
Google announced on Jan. 12 that it had suffered attacks aimed at stealing intellectual property and identifying advocates for human rights reform in China -- prompting the company to reevaluate whether it will continue doing business directly there. Citing unnamed sources, the Times reported that the two schools in China that hosted the attacks are Shanghai Jiaotong University and the Lanxiang Vocational School.
"Jiaotong has one of China's top computer-science programs," the Times reported, while Lanxiang trains computer scientists for the military.
The Obama administration may be set to renew its push for higher capital requirements for banks at home and internationally as the main thrust of regulatory reform, The Financial Times reports.
While officials remain optimistic that Congress will pass a financial regulation this year, there is also a belief that the administration could, as a last resort, achieve much of the desired regulatory overhaul and bypass Capitol Hill.
Even if the much-debated "Volcker rule" that would ban deposit-taking banks from proprietary trading is not approved, the Federal Reserve and other bank regulators will be asked to fine-tune capital requirements to make risky activity more expensive.