Shanghai index steadies but China fears still stalk markets

The central bank on Tuesday injected 130 billion yuan (£13.6bn) into the financial system via reverse repurchase agreements and fixed the yuan stronger to the dollar in reaction to the currency hitting four-and-a-half month lows.

Yesterday saw the CSI 300 index – the top 300 stocks from the Shenzhen and Shanghai Composite – fall 7 per cent, triggering newly-introduced circuit breakers that halted trading for the day.

On Monday and Tuesday, shares on Chinese exchanges went into wild swings, as markets reacted to a number of regulatory actions which could keep the pressure on stocks in China, and also hurt global stock trading.

Tensions in the Middle East also unnerved investors Monday, after Saudi Arabia severed diplomatic relations with Iran the previous day, hours after Iranian protesters set fires in the Saudi Embassy compound in Tehran following the execution of a Shiite cleric.

Temporary circuit breakers were triggered Monday when the Shanghai market tumbled about 7%. The S&P 500 lost 1.53%, with all ten sectors finishing in the red led by financials, health-care and consumer discretionary stocks.

Japan’s Nikkei .N225 fell 1 percent, playing catch-up to falls in US stocks in the last two sessions during Japan’s market holidays.

China’s Shanghai Composite market closed 0.3% down, although it had opened more than 3% lower.

State-controlled funds bought stocks and the securities regulator signaled that a ban on share sales by major investors will remain beyond this week’s expiration date, according to people familiar with the matter.

Marks & Spencer, which reports its Christmas sales figures on Thursday, was 1% lower in the FTSE 100, while Debenhams fell 2% in the FTSE 250.

CRUDE oil prices fell on concerns about the pace of growth in China, the world’s second-largest oil consumer.

Manufacturing surveys across the globe this week showed activity to be anaemic, with China and the U.S. both surprising on the downside. “They are back to the old tricks of trying to shore up the market instead of allowing it to find its natural level”.

The Kospi finished up 0.6% at 1,930.53.

At one stage yesterday the Dow Jones had fallen more than 2.5%, setting it on course for the worst opening day of trading since the height of the Great Depression in 1932.

Benchmark U.S. crude was up 4 cents to $36.80 per barrel in electronic trading on the New York Mercantile Exchange.