Chinese stocks close higher in late rally

The Shanghai Composite Index ended Tuesday’s session 2.9 per cent higher, with all the gains coming in the last hour of trading.

Late-day rallies have become a hallmark of government intervention in the stock market, with Goldman Sachs estimating that Chinese authorities have spent $236 billion propping up the market since a rout began three months ago.

Growth pressures in the wider economy remain with trade data from the customs administration showing overseas shipments declined 5.5 per cent from a year earlier in dollar terms.

The Nikkei 225 stock average dropped 2.4 per cent, erasing all of that gauge's gains for 2015 and taking its losses from its June 24 peak to 16 per cent.

The cabinet office in Tokyo said that the economy shrank less than initially estimated in Q2, dropping an annualised 1.2 per cent, but this wasn’t enough to lift stocks that seemed to take their lead from weaker Chinese trade data.

European shares extended their rebound for a second day, led by car -related companies, as investors bet that state support will limit Chinese market turmoil.

Rio Tinto Group contributed the most to gains rising 1.5 per cent after giving a bullish assessment of China’s steel and copper demand. Glencore added 0.8 per cent as JPMorgan Chase raised its rating.

Among car companies , Daimler AG, BMW and Volkswagen rose at least 2.7 per cent.

The Stoxx Europe 600 Index advanced 1.8 per cent to 361.1 in early morning trade in London.

Shares rebounded on Monday from the previous week’s decline, with miners leading gains, helped by reassurances from China’s central bank governor that stability would return to markets. Chinese stocks rallied on Tuesday for the first time in five days on speculation state-backed funds purchased shares after a weak trade report. “Concerns about a slowdown are still there, but now the market thinks the Chinese government will provide more support,” said John Plassard, senior equity sales trader at Mirabaud Securities in Geneva. “We’re going to see in the next few days some short squeeze in the market, from people closing their short positions before the fed decision. The sectors that are the most impacted are those that suffered the most, and that’s why you see financials, energy, autos higher.”

Asian stocks rose on Tuesday after a six-day losing streak and the dollar firmed against the safe-haven Japanese yen, but gains were capped as a slump in China’s imports raised fears of a more severe slowdown in the world’s second biggest economy.

Following Asia’s lead, spreadbetters expect Britain’s FTSE 100 to open up 0.1 per cent, Germany’s DAX to rise 0.2 per cent, and France’s CAC 40 to gain 0.2 per cent.

China’s August exports fell less than expected, but a steeper slide in imports pointed to continuing economic weakness. A day earlier foreign exchange reserve data revealed a record $94 billion drop in August as the central bank struggled to steady the yuan after its surprise devaluation. The weak data raised expectations of more policy easing in the coming months.

"I'm not optimistic about the prospect of exports and it's unlikely China can achieve the export target this year," said Nie Wen, analyst at Hwabao Trust in Shanghai. "There will be at least three more reserve requirement rate cuts this year to counteract capital outflows."

MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.5 per cent but remained near a three-year low hit two weeks ago. US stock futures trimmed gains to 0.7 per cent after a long weekend. Japan’s Nikkei fell 2.3 per cent, extending its rebound from a seven-month low hit early on Monday while Australia rose 1.2 per cent in early trades. Chinese stocks extended losses, while Hong Kong edged higher.

With US financial markets shut on Monday, the dollar moved little against major currencies. The dollar index stood at 95.813, little changed from late last week. Against the yen, the dollar ticked up slightly to 119.07 yen , still half-way in recovering its losses on Friday.

The euro stood little changed at $1.11670. Oil prices fell more than 3 per cent on Monday as the drop in Chinese share prices and record North Sea production added to global oversupply concerns.

Brent crude futures rose 0.7 per cent to $47.94 after a 3.7 per cent fall on Monday. They still traded below the 50 per cent retracement of their rally late August to $54.32 from a half-year low of $42.23.

- Reuters/Bloomberg