Shanghai rebound unable to prevent new Asia stock retreat

HONG KONG - Shanghai stocks saw another day of volatility Thursday, swinging sharply from big early losses to end on a high while most other Asian bourses tracked a Wall Street slump in the latest rout on world markets.

Any hope Wednesday's regional rally might presage a recovery from the recent bloodbath was wiped out with an immediate sell-off in the opening minutes. Tokyo plunged almost four per cent in the first hour and Shanghai fell below its lowest levels of the summer rout.

However, Shanghai ended slightly more positively - rising two per cent - as investors moved to pick up cheap stocks.

"The market has fallen too much and there are some investors looking for bargains," said Dai Ming, a fund manager at Hengsheng Asset in Shanghai.

The state-backed Securities Times also said 28 firms on the ChiNext index of small caps in Shenzhen had pledged not to sell for six months to stabilise markets, while Bloomberg reported authorities had vowed to more closely monitor share sales by major stakeholders.

It added that the government had likely not been behind the rebound by buying key state firms.

Shanghai slumped almost three per cent in the morning session, meaning it had lost about 20 per cent since a December peak and making it the worst performer among 93 benchmark indexes tracked by Bloomberg.

It lost 2.4 per cent Wednesday despite a better-than-forecast Chinese trade report.

The broad-based sell-off in Asia came after Wall Street's three main indexes saw big losses, with energy firms taking a hammering again as oil prices hit lows not seen since the first half of 2004.

Japan's Nikkei closed down 2.7 per cent and Sydney shed 1.6 per cent while Seoul was 0.9 per cent lower and Hong Kong lost 0.6 per cent in late trade - but all improvements from the morning session.

Energy companies, which were slammed in early exchanges, also clawed back as oil prices saw a slight improvement in the afternoon. CNOOC and PetroChina in Hong Kong shifted into positive territory, while Santos and Rio Tinto in Sydney more than halved their losses.

But there remains unease. Michael McCarthy, chief strategist at CMC Markets in Sydney, said: "It's hard to get bullish at this stage.

"The market focus keeps shifting whenever there's positive news. We saw very good trade numbers from China yesterday and yet we've seen the rebound being short-lived as the focus shifted to commodities. Negative sentiment is dominating."

And China's top diplomat, State Councillor for Foreign Affairs Yang Jiechi, warned it was "not possible to completely discard the possibility that (a global) economic crisis could once again take place, and the problem should not be neglected".

News that US stockpiles had risen last week added to downward pressure on oil. The Brent contract on Wednesday fell below $30, a day after the US benchmark West Texas Intermediate (WTI) did the same.

But the two were higher in the Asian afternoon. WTI gained 1.3 per cent and Brent added 0.4 per cent.

High-yielding, or riskier, currencies softened against the dollar. The South Korean won fell 0.8 per cent and the oil-reliant Malaysian ringgit shed 0.2 per cent.

Indonesia's rupiah shed 0.3 per cent, having lost one per cent soon after reports of several explosions in Jakarta that had killed at least seven people.

But Australia's dollar rose 0.2 per cent as data showed the country's unemployment rate was unchanged in December, beating expectations.

The greenback also bounced back against the yen, which is considered a safe haven in times of trouble, although the Japanese unit is still up about 2.5 per cent this year.

In early European trade Thursday London shed 1.2 per cent, Frankfurt sank 1.3 per cent and Paris slipped 1.2 per cent.

Tokyo - Nikkei 225: DOWN 2.7 per cent at 17,240.95 (close)

Shanghai - Composite: UP 2.0 per cent at 3,007.65 (close)

Hong Kong - Hang Seng: DOWN 0.6 per cent at 19,817.41 (close)

London - FTSE 100: DOWN 1.2 per cent at 5,891.3

Euro/dollar: DOWN at $1.0862 from $1.0874 Wednesday

Dollar/yen: UP at 118.06 yen from $117.72 yen

New York - Dow: DOWN 2.2 per cent at 16,151.41 (close)

New York - S&P 500: DOWN 2.5 per cent at 1,890.28 (close)

New York - Nasdaq Composite: DOWN 3.4 per cent at 4,526.06 (close)