Chinese stocks volatile a day after dragging down global markets

BEIJING - Chinese stocks were volatile Friday and other Asian markets rebounded after a plunge in Chinese prices rattled global markets.

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The Shanghai Composite Index was up 2.4 per cent at 3,199.56 by late morning after swinging between gains and losses.

Trading in Chinese stocks was suspended Thursday after a key index plunged 7 per cent. China's stock markets have little connection to the rest of its economy but two sharp price declines this week have focused attention on the slowdown in Chinese growth.

Stocks worldwide and oil fell on concern about weaker Chinese demand. The Dow Jones industrial average sank 2.3 per cent and the Standard & Poor's 500 lost 2.4 per cent on Thursday. The Nasdaq composite index fell 3 per cent.

European markets also fell. Germany's DAX slid 2.3 per cent, France's CAC 40 gave up 1.7 per cent, and Britain's FTSE 100 lost 2 per cent.

"The poor start to the year clearly warns that global growth concerns remain, that commodity prices are still under downwards pressure and that volatility in investment markets will likely remain high," said strategist Shane Oliver of AMP Capital in a report.

In other Asian markets, Tokyo's Nikkei 225 rose 0.4 per cent to 17,848.10 while Sydney's S&P/ASX 200 was off 0.7 per cent at 4,973.20. Hong Kong's Hang Seng advanced 1.1 per cent to 20,559.34 and Seoul's Kospi was little changed at 1,903.14. Stocks rose in Taiwan and were mixed in Southeast Asia.

On Thursday, Chinese stock trading halted for the day after a key index known as the CSI 300 plunged 7 per cent, tripping a "circuit breaker" that is meant to dampen volatility. On Friday, that benchmark gained 3 per cent at the opening, then fell to a 4.3 per cent loss before recovering.

Late Thursday, Beijing suspended use of that "circuit breaker" after economists warned it was adding to volatility by encouraging investors to sell faster when the market falls.

The latest plunge in Chinese stocks was set off by concern Beijing is allowing its yuan to weaken too fast against the dollar.

The People's Bank of China has allowed the yuan to decline gradually since August after loosening its tie to the dollar. The American currency has risen over the past year, leaving the yuan overvalued compared with other developing countries and hurting Chinese exporters.

On Thursday, the yuan's exchange rate was set at its lowest level since 2011, sparking fears further declines might lead to a capital outflow.

"We suspect this is poor communication by the People's Bank rather than a deliberate devaluation," said David Rees of Capital Economics in a report.

Worries about China were fueled by weaker-than-expected December manufacturing activity. Those fears have drowned out signs that the United States and Europe are doing fairly well.

In energy markets, U.S. crude sank Thursday to its lowest level in 12 years on fears Chinese demand might weaken. The benchmark U.S. rebounded moderately in Asian daytime hours, rising 67 cents to $33.94 in electronic trading on the New York Mercantile Exchange. On Thursday, the contract lost 70 cents to $33.27.

Brent crude, used to price international oils, rose 70 cents to $34.45 a barrel in London. On Thursday, it lost 48 cents to $33.75.

In currency markets, the dollar fell to $1.0883 from $1.0917 in the previous trading session. The dollar rose to 118.26 yen from 117.74 yen.


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