China stocks regain some ground at the end of a dismal week

Eliminating a failed circuit breaker mechanism that halted trading twice this week, the (PBOC) People’s Bank of China raised its guidance rate for the Yuan for the first time in nine trading days allowing US Futures markets to bounce 150 Dow points.

Chinese stocks showed signs of stabilization after authorities moved the yuan higher and suspended a new “circuit breaker” mechanism blamed for exacerbating losses in its market.

The benchmark Shanghai Composite Index closed down 7.04 percent to 3,125.00 Thursday, while the Shenzhen Composite Index, which tracks stocks on China’s second exchange, tumbled 8.24 percent to 1,958.09.

“Currently, negative effects of the mechanism are larger than positive effects”, China Securities Regulatory Commission spokesman Deng Ke tells state-run Xinhua News.

But it didn’t match initial expectations.

Liu said the introduction of the circuit breaker had been a “superficial measure” created to help regulators avoid addressing other more structural problems in the country’s stock markets.

Trading in Chinese stocks was suspended on Thursday after a key index plunged 7%.

Chinese authorities also sought to reassure markets by introducing new rules for holders of major stakes in companies: fears that an end to a six-month ban on the selling of shares by major stockholders – due to come into effect Friday – would lead to a major sell-off were seen as another major factor in this week’s market falls.

The S&P 500 dropped 21 points, or 1.1 per cent, closing at 1922 and down 6 per cent for the week, its worst opening five-day stretch for the index ever, wider than the 5.32 per cent loss in 2008.

In Europe, Germany’s DAX advanced 0.7 percent to 10,050.46 and Britain’s FTSE 100 gained 0.8 percent to 5,998.47.

Stocks worldwide and oil fell on concern about weaker Chinese demand.

Elsewhere, Japan’s Nikkei Stock Average NIK, +0.34% rose 0.3%, Australia’s S&P/ASX 200 XJO, -0.44% was down 0.7% and South Korea’s Kospi SEU, -0.05% was down 0.3% in early trading. In the broad market, a total of 1.4 billion shares worth S$1.2 billion changed hands today as gainers outpaced losers 235 to 150. “There is a wall of worry under full construction brought on by China, fall in oil prices and uncertainty regarding quarterly earnings”, said Terry Sandven, chief equity strategist at US Bank Wealth Management in Minneapolis.

Government-linked entities stepped in to buy stocks for at least the second time this week to shore up the market, Bloomberg reported, quoting people familiar with the matter.

The recovery in China boosted stocks in Europe and Asia Pacific. That’s part of the reason market spikes and drops in China can be quite sharp. “In hindsight”, one said, “the circuit breaker system has made the market even more sensitive and more fragile”. China stocks rose across the board on Friday, with the resources sector surging more than 6 percent and energy shares jumping over 5 per cent. That has compounded problems for China’s exporters, who were already facing higher wages at home and a sluggish global economy.