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Asian Markets Volatile Amid China Economy Fears

Asian Markets Volatile Amid China Economy Fears

Chinese stocks remain highly volatile amid uncertainty over whether cuts to interest rates will stabilise the country's faltering economy.

Key share indexes rallied on opening but were then hit by waves of selling with investors worried that more support was needed from the Government and the central bank.

Following a near 20% plunge in stock prices in three days, the People's Bank of China cut interest rates late on Tuesday.

After the close, the People's Bank of China injected 140bn yuan (£14bn) into interbank money markets via its short-term liquidity operations, the result of which is expected to boost domestic equity markets when they reopen.

It also lowered the amount of reserves that banks must hold in a move that some economists said was long overdue.

After considerable volatility The Shanghai Composite Index closed down 1.3%.

Japan's Nikkei however was buoyant, closing up 3.2%, while Australia rose 0.7%.

The FTSE 100 index of Britain's leading shares was down by more than 1% when it opened at 8am.

Tuesday's rate cut helped the FTSE claw back many of the big losses it sustained on so-called "Black Monday".

It ended Tuesday up 182 points (3.09%) at 6081 as £46.7bn was added to the value of the index after it lost around £74bn (4.7% or 289 points) a day earlier in its biggest daily drop since 2009.

There were also increases in European markets.

Germany's DAX and France's CAC were both up more than 4% at the close, as some commentators dubbed it 'Turnaround Tuesday'.

But America's Dow Jones ended down more than 200 points (over 1%), wiping out gains of around 2% earlier in the session after it suffered big losses the previous day.

All of the major European markets are expected to open lower this morning, with financial spread betters expecting to see up to 50 points wiped off the FTSE 100.

The People's Bank of China also chose to weaken the value of the Chinese currency, the yuan.

The Chinese central bank determines a midpoint level for the value of the yuan. The currency is then allowed to move 2% above or below this midpoint in daily trading. This is known as the daily fixing.

On Wednesday, the dollar/yuan fixing was at 6.4043 - its weakest setting since August 2011.

The Chinese authorities hope that by weakening the yuan they will spur Chinese exports and reinvigorate the flagging economy.