Stock indexes fell in early trading Monday after China moved to raise interest rates to combat rising inflation.

It is the second time in three months that China has taken steps to slow the pace of its economic expansion. Inflation jumped to its highest levels in two years in November. Rising prices have led poor families to spend more than half of their incomes on food.

Any slowdown in China can affect stocks worldwide. Bank of America Corp. estimates that emerging markets like China account for 80 per cent of the world's economic growth.

Shares were down sharply overseas. The Euro Stoxx 50, which tracks blue chip companies in countries that use the euro, fell 1.5 per cent. Asian stock markets closed down less than one per cent.

In early trading, the Dow Jones industrial average fell 49 points, or 0.5 per cent, to 11,526. The Standard and Poor's 500-stock index fell 4, or 0.4 per cent, to 1,252. The Nasdaq composite index fell 14, or 0.5 per cent, to 2,652.

A blizzard in the Northeast is likely to make this a quiet day on Wall Street. There are no major economic reports or corporate earnings announcements scheduled for Monday.

The Toronto Stock Exchange is closed for the Christmas and Boxing Day holidays and will reopen for trading on Wednesday.

Trading volume is expected to be light throughout the week as the New Year's Day holiday approaches. A rally based on improving economic reports and the extension of tax cuts for another two years have pushed stock indexes to two-year highs.

The yield on the 10-year U.S. Treasury note was unchanged at 3.40 per cent.