Commodity stocks took a hit across Europe this afternoon after China became the latest country to raise its bank reserve requirements.

All non-rural Chinese banks will now have to hold more cash in reserve against further lending from the beginning of next week.  Analysts took the news as a sign that China could be about to tighten monetary policy.

Nick Serff, market analyst at City Index, said that the move by China is designed to cool excessive growth and this could have an underlying impact on demand for basic resources.

‘This is why investors moved to reduce their risk exposures within commodity stocks as a safety move.’

In Europe, stocks saw their first sell off of 2010, although the major indices recovered slightly from the day’s lows with a certain amount of ‘bargain’ hunting, following US markets after the DJIA bounced.

Serff added, ‘Today's session marks the first real sell off of the European markets in 2010 and considering the way the year started, and with the FTSE 100 rallying 11 times out of the last 13 sessions, the markets had been due a pull back.’