European Stocks Stabilize Tuesday After China Debacle

On Tuesday, European stock markets rose slightly early in the morning after a steep decline in China’s market Monday took global stocks spiraling after it.

In early gains, Paris rose 0.36%, Frankfurt 0.31%, Milan 0.94% and London 0.71%, while the Stoxx 600 index recorded a rise of 0.50 percent, with stock purchases focusing particularly on raw materials.

By late morning, however, Stocks in Europe had erased opening gains. The Stoxx 600 index fell 2.5% on Monday.

“It wasn’t the start [to the year] we dreamed of,” said Ben Kumar, investment manager at Seven Investment Management.

In an effort to stabilize its volatile market after Monday’s collapse, the Chinese government used state-controlled funds to begin buying up large amounts of stock Tuesday. China’s central bank announced the injection of 130 billion yuan ($19.9 billion) of short-term funds into the country’s financial system.

Despite these measures, the Shanghai Composite Index closed down a modest 0.3% on Tuesday, after having suffered its worst start to the year on record Monday, down 6.9%.

Also Tuesday, Australia’s S&P/ASX 200 also fell by 1.6%, Japan’s Nikkei Stock Average dropped 0.4% and Hong Kong’s Hang Seng Index fell 0.7%.

During last summer’s market crash, Beijing introduced a ban on the sale of shares by the market’s major investors, a bailout measure due to expire this Friday. An end to the controversial ban, which prevents investors who own more than 5% in a single stock from selling, is reportedly one of the major causes of Monday’s crash.

Another factor contributing to Monday’s decline was the People’s Bank of China’s unexpected announcement Monday that it would not roll over a 130 billion yuan ($19.9 billion) credit line to China Development Bank, a major policy bank that finances many of the country’s low-income housing and infrastructure projects.

Investors are reportedly concerned that strife between Saudi Arabia and Iran could signal a rise in oil prices and that the U.S. economy may not be strong enough to withstand such global upheaval.

“Fear woke up this morning, and hope is sleeping in,” said David Kelly, chief global strategist for J.P. Morgan Funds.

China’s heavy losses Monday ignited a global selloff and U.S. stocks tumbled up to 467 points in the morning before recovering to finish down 1.6%, in the worst first day of trading since 2008.

Follow Thomas D. Williams on Twitter @tdwilliamsrome


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