Tokyo: The yen surged to a one-month high against the dollar on Friday and jumped against currencies used for bets on global recovery, as fears resurfaced that China might clamp down on lending and sent Asian stocks falling.
But most regional share indexes pared their losses by late afternoon and the Shanghai share index ended higher after a day of see-saw trade.
European shares opened modestly lower amid growing volatility, trimming the previous session’s gains, with resource-related shares expected to be hit by retreating commodity prices as the fickle Chinese market prompts investors to switch out of riskier assets.
US stock futures fell 0.4%.
Sources told Reuters earlier this month that China’s banking regulator, concerned record lending could lead to a spike in bad loans, might tighten banks’ capital rules by excluding subordinated bonds they sell to other banks from their capital base.
A similar report on Friday re-focused attention on this issue, traders said.
“This is old news and the market has already responded to this once. But investor confidence has been so shaken by the (SHanghai) sell-off earlier this week that every time this news surfaces it’s an excuse to sell,” said Steven Leung, sales director at UOB Kay Hian.
Shanhai ended up a provision 1.7% after shaking off early losses, adding to a 4.5% bounce on Thursday.
But China’s leading index has still lost around 15% in just two weeks, unnerving global investors who are trying to gauge how China’s revival is playing out while wrestling with continued mixed signals on recovery prospects in major Western economies.
A government think-tank said China’s gross domestic product would grow about 8.5% in the third quarter from a year earlier, picking up pace from the second quarter’s 7.9% rise.
As Shanghai moved higher, the MSCI index of Asia-Pacific shares outside Japan pared losses but were still down 1% by 12:30pm.
In Australia, the benchmark S&P/ASK 200 fell 1.9%, with banks leading the decline after a cautious assessment of the outlook for the loan market from Westpac Banking Corp.
Hong Kong, a key market for international investors playing Chinese stocks, fell 1% on the China policy worries despite Shanghai’s stronger close.
The Nikkei average slid to a three-week low in early afternoon after automakers fell ahead of the end of the US “cash for clunkers” programme on Monday, which has boosted US car sales. But it recovered somewhat to close down 1.4 percent.
Shares in the world’s biggest automaker, Toyota Motor, shed 2.9%.
The yen rose broadly against other major currencies, particularly those leveraged to a global growth recovery, as investors fretted about the potential for further weakness in Chinese shares and looked to less-risky investments. The Japanese currency is often seen as a haven in times of market turmoil.
“Anything that could be negative for growth in China is going to have a negative impact on equity markets and in turn means higher risk aversion and risk currencies sell-off,” said Mitul Kotecha, global head of FX strategy at Calyon in Hong Kong.
The dollar fell to as low as ¥93.47 on trading platform EBS, its lowest in a month, but later edged up to ¥93.69, down 0.5%.
The Australian dollar slid 1.4% to ¥77.23 after falling as low as percent to ¥76.86.
US crude futures initially edged up to a seven-week high above $73 a barrel but then slipped below that level as optimism over the pace of demand recovery in the United States faded on the back of mixed economic data.