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Investor focus locks on Fed as China rout slows

Asian shares stayed stuck at seven-month lows on Wednesday, as markets continued to digest a storm in Chinese equity markets, while the dollar rested with traders reluctant to place large bets ahead of the outcome of the Federal Reserve meeting.

Investor focus locks on Fed as China rout slows

FILE PHOTO: Investors stand in front of an electronic board showing stock information on the first trading day after the week-long Lunar New Year holiday at a brokerage house in Shanghai, China, February 15, 2016. REUTERS/Aly Song

LONDON: Global equities regained some poise on Wednesday as a storm in Chinese stocks showed signs of easing, while the dollar made modest gains as investors awaited a Federal Reserve meeting.

After two sessions of falls, Europe's pan-continent STOXX 600 index added 0.3per cent, helped by encouraging earnings reports from Barclays, Deutsche Bank and French luxury group Kering.

That gave investors some relief from worrying about China after a wave of heavy selling in recent days on the back of broadening regulatory crackdowns.

The rout appeared to slow on Wednesday as Chinese blue chips closed up 0.2per cent, but the Shanghai Composite Index ended 0.6per cent down, its lowest close since March 10.

After Asian markets closed, focus quickly turned to the Fed.

Investors are primed for any hints on when the central bank will start reducing its purchases of government bonds and any new insight into its views on inflation and economic growth.

"In the background, you have the ripple effect of the Chinese crackdown and a lot of companies reporting today, but the Fed is the major event," said Francois Savary, chief investment officer at Swiss wealth manager Prime Partners.

"Are we going to get a timetable on tapering? Is it going to be clearly announced?"

The statement from the Fed policy meeting is due at 2 p.m. EDT (1800 GMT), with a news conference by Chairman Jerome Powell expected half an hour later.

In U.S. stock futures, the S&P 500 e-minis, were 0.1per cent higher, signalling a recovery on Wall Street after stocks on Tuesday retreated a little from the record highs set earlier in the week as ripples from China spread.

In U.S. trading, the Nasdaq Golden Dragon China benchmark of Chinese tech stocks listed in New York fell another 6per cent, taking its losses since Friday past 20per cent and wiping US$500 billion off its value.

Chinese state-run financial media urged calm on Wednesday after a roiling of stocks in the technology, property and education sectors in recent days.

Hong Kong's benchmark added 1.5per cent, but remained near nine-month lows.

MSCI's broadest index of Asia-Pacific shares outside Japan was 0.3per cent firmer after three straight sessions of losses.

"The moves are being driven by general risk appetite. On Monday and Tuesday Chinese stocks led everything lower but today there is a bit of pause for assessment," said Colin Asher, senior economist at Mizuho in London.

"There were question marks over the global implications of the recent moves by Chinese authorities but the macro impact on most countries is limited."

Graphic: Chinese stocks in U.S. take a beating:

With investors holding off on major bets before the Fed meeting, the dollar made marginal gains after earlier being pinned down by demand for safe-haven currencies.

The U.S. dollar index moved into positive territory after trading lower in Asian hours, with the greenback last up 0.1per cent at 92.575.

The currency has had a month-long rally after a hawkish shift from the Fed in June.

The Chinese yuan edged back from three-month lows. It had its worst day since October on Tuesday.

The yield on benchmark 10-year Treasury notes strengthened to 1.2644per cent, up from the U.S. close of 1.234per cent.

Greek government bond yields hit new lows on Wednesday as the promise of more central bank largesse to counter the Delta coronavirus variant pushed up demand for even the lowest rated euro zone countries.

Greece's benchmark 10-year government bond yield dropped a basis point to a seven-month low of 0.61per cent.

Oil prices rose as industry data showed U.S. crude and product inventories fell more sharply than expected last week, outweighing worries that surging COVID-19 cases would curb fuel demand. U.S. crude rose 0.52per cent to US$72.02 a barrel and Brent crude rose 0.31per cent to US$74.71 per barrel.

Gold held steady, with spot prices flat at US$1,797.97 near the key psychological level of US$1,800, while Bitcoin rose around 3.2per cent, trading just above US$40,000.

(Reporting by Tom Arnold in London and Alun John in Hong Kong; Additional reporting by Sujata Rao; Editing by Ana Nicolaci da Costa, Kim Coghill, Catherine Evans and Timothy Heritage)

Source: Reuters


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