Asian equities swing as China tries to settle markets

China late Thursday removed the "circuit breaker" mechanism blamed for fuelling sharp sell-offs that shuttered mainland markets early twice in the space of four days, provoking losses on trading floors from Asia to Europe to the Americas.

The initial response was positive but wild swings reminiscent of the summer's China-linked worldwide turmoil, returned on concerns about Beijing's ability to control a long-running malaise in the world's number two economy.

"There's not a lot of stability in terms of policy management in China," Matthew Sherwood, head of investment strategy at Perpetual in Sydney, told Bloomberg News.

"They are very much making it up as they go and there's no doubt that has been quite a common trend from policy makers in the post global-financial-crisis world. It causes large market volatility as people in markets don't like uncertainty."

Shanghai rallied more than two percent at the open before reversing course and going more than two percent into the red. By 0230 GMT it was back up 1.9 percent.

Hong Kong was one percent higher, having also swung from being 0.9 percent up and 0.7 percent down.

Tokyo gained 0.4 percent by the break after a negative start, while Sydney and Seoul also drifted in and out of positive territory.

Global investors have been alarmed by slowing growth in China's economy, which is expected to have expanded in 2015 at its slowest pace in a quarter of a century.

- Social unrest -

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In New York on Thursday, the Dow and S&P 500 lost more than two percent while the Nasdaq shed three percent. London, Paris and Frankfurt were also pummelled, as were Latin American bourses.

Friday's swings came after the China Securities Regulatory Commission (CSRC) said it was shelving the "circuit breaker" introduced at the beginning of the year.

The plan was brought in as part of a scheme to prevent the kind of market volatility that wiped trillions of dollars off valuations in the summer.

But dealers said it instead heightened selling pressure from traders who wanted to avoid being stuck with shares they did not want to hold.

Mainland markets closed early on Monday as the breaker kicked in at a seven percent loss, while trade lasted just 30 minutes on Thursday before the same happened.

Tuesday and Wednesday saw more stable trade, with reports that billions of dollars of government cash was being used to prop up key stocks.

"Retail investors are unhappy and blaming the circuit breaker for not being well-tested," said Thebes Lo, Hong Kong- based vice president at Kim Eng Securities Ltd.

"Given the deteriorating economy in China, the government do not want to risk any social unrest. So they're trying to comfort investors as much as they can in the near term."

The government's attempts to appease the nation's army of retail investors comes just a month ahead of the Chinese New year celebrations, a time when hundreds of millions of people travel for traditional family gatherings.

Authorities also set the central rate for the yuan currency marginally higher against the US dollar on Friday, ending eight days of falls. A decision to set it at a five-year low was one of the catalysts for hefty selling on Thursday.

- Key figures around 0230 GMT -

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Shanghai - composite: UP 1.9 percent at 3,185.67

Tokyo - Nikkei 225: UP 0.4 percent at 17,836.90 (break)

Hong Kong - Hang Seng: UP 1.1 percent at 20,560.71

Euro/dollar: UP at $1.0879 from $1.0928 late Thursday

Dollar/yen: UP at 118.27 yen from 117.65 yen

New York - Dow: DOWN 2.3 percent at 16,514.10 (close)

London - FTSE 100: DOWN 2.0 percent at 5,954.08 points (close)

AFP