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Shanghai and Wall Street rebound, but volatility looms

Thursday, March 1st 2007 - 21:00 UTC
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After “rice effect” most markets recovered but with caution and deep fears of further volatility After “rice effect” most markets recovered but with caution and deep fears of further volatility

Chinese stock markets rebounded Wednesday following their deepest fall in a decade but most markets in Asia and Europe kept sliding for a consecutive second day amid fears of a slowing of China and the United States economies.

Shares in Japan, South Korea, Singapore, India, Australia and Philippines lost an average 2% following the Tuesday slump in Wall Street the steepest since the terrorist attacks of September 2001. In China the Shanghai Composite Index recovered 3.9% Wednesday after the 9% collapse of black Tuesday when rumors of possible taxes on stocks and stricter control of funds invested led to the turbulence. Chine finance officials used a front-page report in the state-owned Shanghai Securities News to deny the rumour about a plan to impose a tax on capital gains by retail investors. State media blamed this rumour for Tuesday's panic-selling. Sensing the gravity of the situation, Premier Wen Jiabao also reiterated the importance for China to "focus on ensuring financial stability and security," signalling the government's determination to prevent any market meltdown. The bullish comments in the state media appeared to encourage nervous domestic investors, who account for virtually all trading in China. Strong buying by government-controlled institutional investors and overseas funds also helped to boost market sentiment. In Europe London's FTSE 100 index closed down 114.6 points, or 1.8%. France's Cac 40 index dropped by 1.3% and Germany's Dax lost 1.5%. However the Dow Jones, which closed down 416 points - or 3.3% - on Tuesday, clawed back 52.39 points, or 0.43%, to end the day at 12,268.63. News of a slump in sales of new US homes, and a downgrading of estimates of US growth, failed to dent the Dow, which earlier in the day rose by as much as 137 points before falling back. The White House refused to comment on events on US and global stock markets, but a spokesman said "the fundamentals are very strong". Federal Reserve chairman Ben Bernanke added that Tuesday's stocks slide had not changed the Fed's outlook for moderate US growth. In Latinamerica most markets recovered but with caution and deep fears of further volatility. Sao Paulo's Bovespa recovered 1.7% after having suffered the biggest loss in five years on Tuesday. Mexico had a similar modest reaction after having fallen 5.8%. In Chile the IPSA index rebounded 3.16% after losses of 4.97% on Tuesday, the worst since 1999, which means the two months of 2007 will close flat almost equivalent to the start of the year. In Buenos Aires the Merval climbed a tepid 0.7%, and analysts said that much will depend on how Wall Street finally stabilizes.

Categories: Economy, International.

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