China trade surprise brings relief; oil jumps

[January 13, 2016]  By Patrick Graham

LONDON (Reuters) - Stock markets in Europe and Asia rose and oil prices jumped on Wednesday after Chinese trade data cooled concerns over the world's second biggest economy, steadying money and currency markets in Shanghai and Hong Kong.

Japan's Nikkei index jumped 2.9 percent and futures markets pointed to a higher opening on Wall Street after China reported exports dipped just 1.4 percent in dollar terms in December, compared with forecasts of an 8-percent drop.

A 4-percent fall in imports was also much smaller than many had feared, but the reaction was not uniformly positive.

Prices for copper - of which China is the world's biggest consumer - rose, but iron ore prices fell and Shanghai shares themselves fell by about two percent.

Traders said the mood on many markets was still shaky after an extremely volatile start to 2016, driven by worries over conflict in the Middle East, China's finances and the fallout from low oil prices.

"Markets seem to be stabilizing and moving higher as sentiment is turning. The yuan is no longer moving lower, but each and every piece of data from China will be looked at with much attention," said BNP Paribas Fortis Global Markets' head of research, Philippe Gijsels.

All Europe's major markets gained more than 1 percent while Asian markets saw their first solid rally of the year, suggesting that some believe Beijing has done enough to gain control of the yuan for now.

Overnight interest rates in Hong Kong, jacked up to 94 percent on Tuesday, were back near 8 percent.

More stability in China would also leave the way clearer for the U.S. Federal Reserve to raise interest rates this year and the brighter tone drove the dollar about half a percent higher to 118.16 yen and up a third of cent against the euro.

Australia's dollar, often a proxy for China on major currency markets, gained 0.6 percent.

"It is hardly surprising that safe haven currencies like the yen are under pressure. However, it is questionable how long this risk appetite will last," said Lutz Karpowitz, currency strategist at Commerzbank.

Investors also pulled cash out of European bond markets in favor of stocks and the latest round of some 35 billion euros of government debt, set to be sold in the euro zone this week, also pushed up bond yields.

Germany and Italy sold debt at auction at Wednesday, while Belgium is set to price a new 10-year bond before Spain rounds off the week with its second debt sale on Thursday.

Germany and Belgium are set to sell 10-year bonds on Wednesday.

U.S. crude jumped almost a dollar to $31.19 a barrel, a day after dipping below the $30 barrier for the first time in 12 years.

Benchmark Brent was similarly higher at $31.54 a barrel. U.S. crude had fallen 17 percent in just seven sessions, a gift to consumers across the globe but also a strong force for disinflation.

(Additional reporting by Atul Prakash in London; Editing by Louise Ireland/Nigel Stephenson)

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