By Greg Peel

The Dow rose 56 points or 0.5% but the S&P added only 0.1% to 1339 and the Nasdaq gained 0.3%.

It has long been expected by economists that the People's Bank of China would raise its interest rates at least once in the second half of 2011ahead of a peak in the rate of growth of inflation. Speculation had built that the hike would come on the weekend but the announcement came late yesterday.

Beijing has increased the bank reserve requirement ratio multiple times this year as a form of incremental monetary policy tightening, but this is only the third increase in interest rates. The benchmark one-year lending rate was raised by 25 basis points to 6.56% and the equivalent deposit rate by 25bps to 3.5%. With inflation running over 5%, real deposit rates remain negative.

It's no great shock, just another reason for global equity markets to be nervous. Beijing is still trying to cope with overheating in its investment markets. In the meantime, the downgrade of Portuguese debt by Moody's after the European close on Tuesday had its impact last night, with both pieces of news weighing on the euro. It was down 0.8% last night, sending the US dollar index up 0.4% to 75.02.

The markets had priced Portuguese debt down to junk months ago but unfortunately we always get these slippery slope effects ? market prices down, ratings agency downgrades, market prices further down on the downgrade, and then at some point the agencies downgrade again. Eventually yields become too expensive for governments to consider rolling over debt in the market and we have a Greek situation. Take the ratings agencies out of the equation and the problems would probably go away.

Wall Street stumbled slightly from the opening bell on China, and news that the June services PMI fell to 53.3 from 54.6 in May when economists had expected 54.0. The dip ran against the trend of the strong manufacturing PMI announced last week, but Wall Street soon took the result in its stride. Volume was nevertheless weak last night, as it was in Tuesday's session, as traders wait for jobs and earnings. The ADP private sector report has been pushed back to tonight given the holiday on Monday and the official non-farms payroll number comes out on Friday night.

Weakness in the euro last night flew in the face of expectations of an ECB rate hike tonight, although the hike is so widely expected it's hard to see any great rally eventuating. Were the ECB not to raise, look out.

It must have been the Europeans' turn to buy gold last night on shifting sovereign debt fears, given gold was up another US$13.30 to US$1529.40/oz and all other commodities were quiet. With Wall Street positioning itself positively for the upcoming earnings season, it may also be that gold hedges are proving popular. Silver was up 1%, but that's a quiet night for silver.

Base metals were all off smallish amounts, with the exception of a 1% fall in zinc, reflecting the anticipated Chinese hike. Brent oil was up US47c to US$114.08/bbl in its relentless rebound while West Texas gained US9c to US$97.02/bbl.

US bond yields continued to ease off as Portuguese yields soared but not substantially. The ten-year yield was down 3bps to 3.10% and is still a lot higher than it was a couple of weeks ago.

The Aussie is steady at US$1.0696 and the SPI Overnight lost 8 points or 0.2%.

So its jobs, jobs and more jobs over the next couple of sessions with the Australian unemployment report out today, the US ADP report and weekly jobless claims out tonight, and US non-farm payrolls on Friday night. Then we move on to the US earnings season.

It is also interesting to note that despite European debt fears, Chinese hard landing fears and US recovery fears, the VIX volatility index is sitting at just under 16.5 and has rarely fallen lower than 15 in recent times. There's not much insurance being sought.

Rudi will appear on Lunch Money on Sky Business at 12pm today.