FTSE dips below 6000 as China fears wipe £36bn off market

The nation’s market circuit breakers, which halt exchanges for 15 minutes after a 5 per cent drop in the CSI 300 and for the rest of the day after a 7 per cent retreat, have been criticised by analysts for exacerbating losses as investors scramble to exit positions before getting locked in. The benchmark Shanghai Composite Index was down 7.32 per cent to close at 3,115.

Both the Shenzhen Component Index and the ChiNext index of growth shares plunged more than 8 percent. Major European indexes dropped around 3 percent while Wall Street was set to fall on the open.

Nicholson said, “It’s hard to see the circuit-breakers surviving long in their current form, given they only seem to be further contributing to the volatility in the Chinese market”. Those worries about China have drowned out signs that the economies of the US and Europe are doing fairly well. Yet Chinese stocks rebounded more than 19% for the remainder of the year while USA stocks climbed 7%.

For the second time this week, concerns about the world’s second largest economy sent Chinese stocks plummeting more than 7%.

In Germany, markets fell in response to the events in China.

While investors should focus on China’s economy, not its turbulent equity market, the economy isn’t looking that great either.

The latest fall in China’s stock markets is connected to the rapid devaluation of China’s currency, the yuan, or renminbi.

For one, the distance between the level that triggers a temporary halt – a 15-minute pause takes place after a 5% drop – and a full-day stop, which happens after 7%, is simply too narrow. USA 10-year Treasury notes were last down 4/32 in price to yield 2.1914 percent from 2.177 percent late Wednesday. These rules were counterproductive because they pushed investors to sell as soon as possible so they wouldn’t be stuck with losses when the market closed.

For the second time in four days, China suspended equities trading after stocks plunged on Thursday. The uncertainty has contributed to the volatility on the stock exchange.

The dollar index .DXY , which measures the greenback against a basket of six currencies, was up 0.3 percent at 98.553, far below the session high of 99.183.

Benchmarks in Taiwan, New Zealand and Southeast Asia also fell.

In other commodity news, March copper shed seven cents to US$2.02 a pound and the February contract for natural gas rose 11.5 cents to US$2.382 per mmBtu.

Markets had been spooked by China setting a lower value for its currency, the yuan.

In currency markets, the euro fell to $1.0872 from $1.0917 on Thursday.