Shanghai leads Asia stocks down, further volatility tipped

GMT 07:15 2015 Monday ,31 August

Arab Today, arab today Shanghai leads Asia stocks down, further volatility tipped

Shanghai stocks
Hong Kong - AFP

Chinese stocks tumbled again on Monday, leading Asian bourses lower as uncertainty over US interest rates revived fears of a broader global economic slowdown that has rocked financial markets.

Analysts warned of further gyrations following a rollercoaster ride last week, with investors shifting into safe-haven assets such as the yen and gold, while oil sagged.

Shanghai sank 2.61 percent in the morning. The index plunged more than 16 percent from Monday to Wednesday before bouncing 10 percent in the next two sessions.

The rebound came after Beijing cut the cost of borrowing -- its fifth interest rate reduction since November -- in a bid to pump up the country's economy, which is a key driver of global growth.

Other regional indexes followed suit after enjoying healthy gains on Friday. Hong Kong lost 0.41 percent, Tokyo fell 1.05 percent and Sydney was 1.11 percent lower while Seoul shed 0.49 percent.

The extreme swings in China -- which has seen Shanghai lose about 40 percent since hitting a June 12 high -- have fuelled concerns that Beijing is struggling to get a grip on its economic slowdown.

Analysts say China needs to rebalance its economy so that it relies more on consumer demand and less on lavish state spending.

A successful transition is seen as crucial for the worldwide economy.

On Friday, credit rating agency Moody's slashed its 2016 growth forecast for leading G20 economies to 2.8 percent from 3.1 percent, predicting contractions in Brazil and Russia and lower demand for manufactured goods in Korea and Japan due to problems in China.

Comments from US Federal Reserve Vice Chairman Stanley Fischer at the weekend that left open the possibility of a September hike in interest rates have added to nervousness.

The historically low US interest rates of recent years have fuelled investment in global stock markets because they have made it cheap to borrow money for speculation.

A rise would likely tamp down that appetite.

-'Difficult for the Fed' -

In a speech at a conference on monetary policy in Jackson Hole, Wyoming, the Fed's number two said the bank will not wait for US inflation to hit two percent before tightening policy.

"The change in the circumstances which began with the Chinese devaluation is relatively new and we are still watching how it unfolds. So I wouldn't want to go ahead and decide right now," he later said in a CNBC interview.

Nader Naeimi, head of dynamic asset allocation at AMP Capital Investors in Sydney, told Bloomberg News: "We are going to continue to see volatility.

"The Fed is aware of the market volatility and you wouldn't have thought they would be raising rates into market turmoil.

"But at the same time, data coming out of the US has been surprisingly resilient and strong. It's very difficult for the Fed."

Traders, fearing further losses, switched into safer investments. The dollar fell to 121.18 yen, from 121.52 yen in New York, while gold traded at $1,134.52, against $1,127.82 late Friday.

Both the precious metal and the Japanese currency are seen as safe bets in times of turmoil as they tend to hold their value.

Oil prices turned lower after enjoying their best week in years.

Oil is a key indicator of demand and has taken a hit from concerns about China, the world's largest energy user, as well as a global oversupply and a strong dollar.

US benchmark West Texas Intermediate for October eased 71 cents to $44.51 while Brent crude fell 88 cents to $49.17.

Last week saw WTI gain 11 percent, its strongest weekly increase in four and a half years, after the contract slid Monday to its lowest close in six and a half years. Brent was up about 10 percent, its best gain since 2009.

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