European shares inch higher after China ditches intervention

European shares inched higher on Friday, signalling a possible stabilisation from this week’s earlier sell-off as Chinese stocks rose after the country’s circuit breaker mechanism was axed to calm investor sentiment.

The pan-European FTSEurofirst 300 index was up 0.2 per cent earlier but was still on track for its steepest weekly drop since late August.

The euro zone’s blue-chip Euro STOXX 50 index also advanced by 0.1 per cent. China’s major stock indexes rose sharply on Friday after Beijing ditched a circuit breaker mechanism that had halted trading twice this week, and had been blamed for exacerbating the market sell-offs it was designed to limit.

Mining stocks were the main beneficiaries of the rebound after steep losses in the previous session.

Mining stocks are particularly sensitive to the state of the Chinese economy, as China is the top global consumer of metals.

China announced late on Thursday that it suspended its new stock market circuit breaker introduced only on Monday as the system failed to reduce market volatility, with some market players even saying it backfired. The CSI300 index of major Shanghai and Shenzhen stocks was up 2.7 per cent and the Shanghai Composite climbed 2.6 per cent. The gains pared losses for the week for both indexes to less than 10 per cent.

Higher Chinese stocks also supported MSCI's broadest index of Asia-Pacific shares outside Japan, which erased earlier losses to be up 0.5 per cent. That put it on track for a decline this week of about 6 percent, which would be its biggest fall since August. The People's Bank of China (PBOC) also helped soothe markets by setting a stronger yuan midpoint rate against the dollar.

It set the rate at 6.5636 per dollar prior to market open, firmer than both the previous fix and Thursday’s closing quote. The spot market opened at 6.5700 per dollar, and was trading at 6.5889 earlier.

The Chinese central bank on Thursday wrong-footed traders by reportedly intervening heavily to defend the yuan in offshore trade, reversing a decline of more than 1 percent that took it to a record low of 6.7600 per dollar. The PBOC's Friday setting is "a signal it does not intend to keep allowing the yuan to fall," said Yoshinori Shigemi, global market strategist at JPMorgan Asset Management.

Japan's Nikkei surrendered earlier gains to end the day down 0.4 per cent at its lowest closing price since September 30th. That extended losses for the week to 7 per cent, the biggest weekly decline in four months. Wall Street also had a gloomy session, with the S&P 500 losing 2.4 per cent on Thursday, with 40 per cent of the stocks in the benchmark trading 20 per cent or more off of their highs, the definition of a bear market.

Reuters