European stocks moved back into the red after opening up as much as
1 percent, and U.S. futures pointed to a fall of 0.6 percent on Wall
Despite a cash injection of around $20 billion, Chinese shares
listed in Shanghai and Shenzen ended no better than little changed
on Tuesday and the yuan fell to a new 4-1/2-year low in offshore
Sanjiv Shah, chief investment officer at Sun Global Investments,
said Beijing's latest attempts to steady its equity and currency
markets reflected the depth of the concerns rippling across world
"The Chinese government is trying to manage the market moves and
reduce volatility. However, the trend of slowing growth as
manufacturing continues to perform poorly is clearly worrying
traders," Shah said.
Panic selling, mostly by China's army of small retail investors,
sent the country's shares diving 7 percent on Monday, the first
trading day of 2016, That set off a worldwide reaction, pushing
MSCI's global index 2 percent lower.
The global index recovered early on Tuesday but by midsession in
Europe was back down 0.2 percent. The FTSE pan-European index of 300
leading shares was also down 0.2 percent at 1,398 points, extending
Monday's 2.5 percent fall.
German and French stocks were down 0.6 percent after opening around
1 percent higher while Britain's FTSE 100 index was down 0.1
Emerging equities, having posted their biggest one-day fall since
August, stayed close to those lows.
Monday marked the worst opening day of a year for stocks in many
years. In the case of the S&P 500 it was since 2001 and the Dow
Jones Industrials at one stage was on track for its biggest opening
day fall since 1932 before clawing back some ground.
Many analysts predicted that investors would view any bounce on
Tuesday as a chance to sell, given the economic gloom across much of
the world, weak commodity prices and the escalation of political
risk in the Middle East, where Iran and Saudi Arabia are facing off
over Riyadh's execution of a Shi'ite cleric.
"The price action reminds investors that the world is more connected
than ever; volatility is likely here to stay, and liquidity may
suffer if investor uncertainty worsens," analysts at Citi said in a
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Manufacturing surveys across the globe this week showed activity to
be anemic, with China and the United States both disappointing.
That was one reason for the weakness in stocks while the price of
Brent crude oil, despite tensions in the Gulf, remains near recent
12-year lows below $37 a barrel.
Furthermore, the end next Monday of a 6-month "lockup" on Chinese
share sales by major institutional investors may cause a massive
evacuation from stocks, many fear.
The nervous backdrop, following on from last month's U.S. interest
rate rise, the first in almost a decade, has boosted the dollar
further against a basket of currencies following gains of around 11
percent in 2015.
The dollar gained further ground on the euro on Tuesday, after
initial estimates of euro zone inflation last month came in below
expectations. Consumer prices rose 0.2 percent, against a median
forecast of 0.3 percent.
The euro fell 0.7 percent to a one-month low of $1.0757. The souring
sentiment across global stock markets boosted the Japanese yen,
however, with the dollar falling 0.3 percent to 119.00 yen.
Concerns are also focused on the yuan which hit a new trough,
aggravating the share market slump. China's currency has stabilized
after interventions but the gap between the tightly managed onshore
yuan and its freer offshore counterpart widened to 1.7 percent.
Investors sought the safe haven of bonds, pushing the 10-year
Treasury note yield down 2 basis points to 2.22 percent.
(Additional reporting by Sujata Rao; editing by John Stonestreet)
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