World stock markets saw their positive start to 2010 threatened yesterday as lingering uncertainty about the global recovery and central bank policy came to the fore.

China helped trigger a bout of nerves as its central bank unexpectedly sold three-month bills at a higher yield for the first time in almost five months, indicating a significant step-up in policy tightening.

“This move is a deliberate one and suggests that Chinese policymakers are beginning to make good on promises to use policy to ensure that domestic monetary conditions do not lead to overly problematic asset bubbles, while still providing an overall stimulatory environment,” said Sacha Tihanyi at Scotia Capital.

Mainland Chinese equities suffered their biggest fall for two weeks, as the Shanghai Composite index shed 1.9 per cent.

Jing Ulrich, managing director of China equities and commodities at JPMorgan, warned that the momentum that had propelled Chinese stocks in 2009 may gradually slow, in spite of resilient domestic demand and improving external demand.

“We find the overall macro-economic environment less supportive of the equity rally – but with economic growth still strong, the downside in the event of a correction should be limited,” she said. Other Asian equity markets also fell, with Hong Kong dropping 0.7 per cent and the Nikkei 225 Average in Tokyo slipping 0.5 per cent.

European stocks trimmed early declines, with the FTSE Eurofirst 300 ending just 0.1 per cent lower. By midday in New York, the S&P 500 was flat, but close to 15-month highs.

“We have a [US equity] market here that is at least 25 per cent overvalued,” said David Rosenberg, chief economist and strategist at Gluskin Sheff. “It can stay overvalued for extended periods of time but what makes overvalued markets unique is that they become very susceptible to any adverse news.” Central bank policy was in focus as the Bank of England held interest rates steady at 0.5 per cent and kept the size of its quantitative easing programme at £200bn.