World equities swing as Shanghai plumbs new depths

Equity markets convulsed on Tuesday as Chinese stocks pursued their worst rout in nearly two decades, after concerns of a slowdown in the world's second-largest economy sparked panic selling around the globe.

Shanghai stocks tumbled on Tuesday, extending their steepest four-day fall since 1996, but European equities rebounded in early trading as investors went bargain-hunting after heavy losses the previous day.

A slump in Chinese shares sparked pandemonium across financial markets on Monday, wiping some $2.7 trillion off global equities as bourses from London to Buenos Aires were caught up in the plunge.

The dollar hit a seven-month low against the yen in New York, prompting a warning from Japan, while US oil finished below $40 a barrel for the first time in six years.

China is the world's top trading nation and a key driver of global growth, so signs its economy is faltering -- particularly when the US Federal Reserve is expected to raise interest rates for the first time in almost a decade -- have created shockwaves.

Shanghai stocks tumbled 7.63 percent, closing below the key 3,000 point mark for the first time this year, piling on losses after their worst daily fall since 2007 on Monday.

Tokyo ended a see-saw session down nearly 4.0 percent, in its sixth straight day of losses, but Hong Kong, Sydney and Seoul managed to eek out gains ahead of an early bounce in London, Frankfurt and Paris.

"There was no clear catalyst for the global stock meltdown," said Bernard Aw of IG Markets.

"A spate of better economic news may help to allay concerns that global growth is not deteriorating. Certainly, improvements in the Chinese economy will be welcomed."

- 'Inevitable implosion' -

Slowing growth in Asia's largest economy has long kept investors on edge but China's shock devaluation of the yuan two weeks ago, following a string of weak economic data, has riled world markets.

Fears Beijing could taper a massive share market rescue package helped push Shanghai down 8.49 percent on Monday, wiping out the year's gains.

Capital Economics said investors had been "overreacting about economic risks in China", arguing that the "the collapse of the equity bubble tells us next to nothing about the state of China's economy".

The yuan's daily reference rate against the dollar was set lower for the first time in nine sessions on Tuesday at 6.3987.

Chinese shares have been on a roller-coaster ride after a year-long debt-fuelled rally collapsed in mid-June, prompting the government to unleash a vast support package that has included using state vehicles to support the market.

Beijing said on Sunday it would also allow the state pension fund -- which had 3.5 trillion yuan ($546 billion) of assets at the end of 2014 -- to buy stocks.

And on Tuesday the central bank said it had pumped 150 billion yuan into the money market to ease tight liquidity, in what state media said was the largest injection since January 2014.

But mainland investors are worried that support could start to shrink and they are now waiting to see if the "national team" will intervene further, or if China's central bank will do more to loosen monetary policy.

"A combination of poor data and policy inaction in China may have triggered today's market falls, but the bigger picture is that we are witnessing the inevitable implosion of an equity market bubble," said Mark Williams of Capital Economics.

- Dollar weak -

The dollar traded 119.78 yen, up from a seven-month low of 116.18 yen in New York on Monday, but weaker than 122.06 yen seen in US trading on Friday.

The yen has strengthened this month as investors tend to buy the unit in times of uncertainty, but Japan's Finance Minister Taro Aso warned Tokyo was monitoring the "rough" gains, which could hit exporters.

Minutes from the Federal Reserve's latest meeting have also dampened expectations for a rate hike, taking the wind out of the greenback's rise this year, although investors still expect a rise this year.

The euro stood at $1.1534 and 138.14 yen in Tokyo, compared with $1.1606 and 137.55 yen in New York overnight.

Commodity prices recovered after Monday's rout, although oil remained under pressure as dealers expect a global supply glut to continue for the coming years.

US benchmark West Texas Intermediate (WTI) for October delivery was trading at $39.06 after closing at $38.24 a barrel on the New York Mercantile Exchange.

Brent North Sea crude for October, the international benchmark, was at $43.61 a barrel after closing at $42.69 a barrel in London.

Safe-haven gold traded at $1,149.22, down from $1,154.00 late on Monday.