Not clear sailing for the economy yet...

China's being cautious, so markets are running scared:

The Canadian dollar plummeted more than a cent Wednesday and markets dove on concerns that China will curb bank lending and slow the economic recovery.

Traders were responding to a newspaper report that some Chinese banks have been ordered to stop lending for the rest of January after exceeding credit limits.

The Canadian dollar closed down 1.51 cents to 95.51 cents US. Oil ended the day off $1.40 at $77.62 US a barrel. The February gold bullion contract on the Nymex closed down $27.40 to $1,112.30 US.

The markets also ended lower, although they had recovered somewhat from their bigger losses earlier in the day.

The S&P/TSX composite index in Toronto was down 84.1 points to 11,679.3.

The Dow Jones Industrial Average was off 122.28 points, or more than one per cent, at 10,603.15, and the Standard & Poor's 500 share index was down one per cent at 1,138.04.

The Nasdaq composite index ended down 29.15 at 2,291.25.

The Canadian dollar fell against the U.S. dollar, which strengthened as investors sought safety in American short-term debt. Traders also saw little cause for Canadian interest rates and the loonie to appreciate, after a report showing the annual inflation rate rose to 1.3 per cent, or less than expected, last month.

Scotiabank deputy chief economist Aron Gampel told CBC News that investors are now realizing their expectations about the rate of recovery and the growth in corporate earnings may have been overly optimistic.

"Even through the earnings growth is there, the expectations haven't been met," he said. "We've been raising the bar on expectations because the economy seems to be taking off and everyone's expecting profits to rebound quarterly, so any disappointment is having some impact on the outlook and clearly it takes some of the shine off of the markets and the currencies."

From the CBC. I still think there's a significant chance of a double dip recession, or at least a lengthy "jobless recovery".