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 European trading got off to a steady start, even though stocks had
plunged 6.75 percent in China where the country's regulator
warned investors were being gripped by "panic sentiment".
That put all of Asia into a tailspin. Hong Kong dropped 8 percent,
and Japan's Nikkei and stocks in Australia took heavy blows, leaving
investors only the yen and safe-haven government bonds for refuge.
The yen rose to a six-week high against the dollar.
The wave of global uncertainty also left traders wondering whether
Federal Reserve meeting minutes due later, normally a market mover,
would provide much value considering the real-time risks.
Beijing has taken a series of steps to stabilize its turbulent
markets in recent weeks, but with little success so far. Nick
Lawson, a managing director at Deutsche Bank in London, said the
authorities now had two choices.
"1) let the unwind run its natural course and deal with the fallout
or 2) manipulate the market but run the risk that this will entail
so many impediments to free trade that index providers and foreign
investors will be discouraged from entering the market for a long
time."
For once, it left the euro zone's long-running Greek drama as a side
show.
Euro zone leaders on Tuesday gave Athens until the end of the week
to come up with proposals for reforms in return for loans. Without
the aid, Greece is likely to crash out of Europe's single currency.
One of the European Central Bank's top policymakers, Christian Noyer,
said without a deal the ECB would pull the emergency funding that is
now keeping Greece's banks alive.
"Our rules oblige us to stop immediately at the point when there is
no prospect of a political accord on a program, or at the point when
the Greek banking system crumbles - which would happen if it enters
generalized default on all its debts," he said.
But European investors managed to stay hopeful that a deal was still
possible. The pan-regional FTSEurofirst 300 snapped a four-day
losing streak, led by Italian and bank stocks.
The euro also climbed back to $1.1035 and southern euro zone
government bonds made ground as risk appetite tentatively recovered.
DELICATE CHINA
Commodity markets were another victim of China's turmoil.
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Oil prices fell again, in what is shaping up as their biggest weekly
slump since March. Copper in London and Shanghai dropped to six-year
lows and gold slid to a four-month trough.
"A perfect storm of events has hit oil markets," Morgan Stanley
said.
The drop in China extended a plunge that has slashed Chinese shares
30 percent since mid-June, threatening the country's already-slowing
economy despite a slew of measures to support the market.
Over 500 China-listed companies announced trading halts on the
Shanghai and Shenzhen Exchange on Wednesday, taking total
suspensions to about 1,300 - 45 percent of the market.
"I've never seen this kind of slump before. I don't think anyone
has. Liquidity is totally depleted," said Du Changchun, an analyst
at Northeast Securities.
"Originally, many wanted to hold blue chips. But since so many small
caps are suspended from trading, the only way to reduce risk
exposure is to sell blue chips."
The Australian dollar, often used as a liquid proxy for China plays,
slumped to a six-year low against the U.S. dollar of $0.7389.
The yield on the 10-year U.S. Treasury note last stood at 2.210
percent, below its U.S. close of 2.231 percent on Tuesday, when it
dropped to a five-week low of 2.185 percent.
(Reporting by Marc Jones; Editing by Larry King)
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