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Asian shares resume slide on fears over Chinese economy

Asian stocks looked vulnerable to another sell-off on Tuesday

Asian stocks looked vulnerable to another sell-off on Tuesday. Picture: stock.xchng.

TOKYO - Asian stocks looked vulnerable to another sell-off on Tuesday, with investors gripped by fears of a hard landing for the Chinese economy, the world's most important growth engine.

Japan's Nikkei index fell 3.8 percent to six-month lows while the MSCI's broadest index of Asia-Pacific shares outside Japan hit fresh three-year lows.

Underlining concerns about China, Japanese Finance Minister Taro Aso said on Tuesday he hoped China would take action to stabilise its economy and that Tokyo had no plan for now to unveil its own new economic stimulus package.

MSCI's all country world index fell 3.8 percent on Monday to a 10 1/2-month low, its biggest fall in almost four years. It has lost 9.2 percent over five days.

Leading the losses were Chinese shares, which plunged more than 8 percent to post their biggest losses since 2007 on heightened worries that the Chinese economy was growing at a much slower pace than Beijing's 7 percent target for 2015.

Investors are also unnerved by uncertainty over U.S. monetary policy. The Federal Reserve has said it plans to raise interest rates this year for the first time in almost a decade.

The heavy fall in share prices worldwide over the past week has sharply reduced expectations of a U.S. rate hike in September, but the outlook is far from clear.

"There seems to be no consensus with the Fed on whether they are worried about acting too prematurely or too late," Toru Yamamoto, chief bond strategist at Daiwa Securities, said in report.

The S&P 500 Index fell 3.9 percent to a 10-month low on Monday. The CBOE volatility index, a key measure of U.S. equity volatility, shot up to more than 50 percent at one point for the first time since the 2008 global financial crisis.

Because some investors often fund their investment in risk assets by borrowing low-yielding euro and yen, the sell-off in shares helped send both currencies to seven-month highs.

The euro rose as high as $1.1715 and last stood at $1.1571 while the yen strengthened to 116.15 to the dollar before stepping back to 118.80.

The dollar was not helped by falls in US bond yields either, which diminishes the currency's yield attraction.

The 10-year US Treasuries yield fell to a four-month low of 1.905 percent in choppy trade on Monday and last stood at 2.012 percent.

Oil prices plunged more than 6 percent on Monday to 6 1/2-year lows after the dive in Chinese equities market.

U.S. crude futures traded at $38.38 per barrel, near Monday's low of $37.75.

Brent crude futures fell to $42.23 on Monday and last stood at $42.69.

Brent stood not far from $36.20, its low hit in the aftermath of the global financial crisis, having fallen more than 66 percent from last year's peak.

Copper, a good indicator of global economic activity because of its wide use, declined to a six-year low of $4,855 a tonne, falling more than 52 percent from its 2011.

The fall in commodity prices have hurt many commodity exporting countries' currencies.

The Australian dollar traded at $0.7177, having fallen to a 6-1/2-year low of $0.7044 on Monday.

SOUTH AFRICA

The South African Reserve Bank (Sarb) in a statement said, "In the event of developments that threaten the orderly functioning of markets or that may have financial stability implications, the Sarb may consider becoming involved in foreign exchange markets to ensure orderly market conditions."

The rand plunged amidst concerns that dropping commodity prices will deepen as China's economy slows.

On Monday afternoon the rand was at 13,27 to the US dollar and 15,22 to the euro.

The weaker rand is likely to fuel inflation, putting pressure on Sarb to raise domestic rates further despite an economy struggling to grow in the face of South Africa's worst power crisis in seven years.

The rand recorded its biggest daily loss in 19 months, touching 14 to the dollar, its weakest level on record according to Thomson Reuters data.

By 1545 GMT it was trading at 13,2, down 1,81 percent from Friday's close.

The benchmark top-40 share index closed about three percent lower, in a broad-based decline.

Government bonds were not spared the sell-off, with the yield for the 2026 benchmark pushed to its highest in more than two months, reinforcing the case for a further interest rate rise this year.

While not spelling out the nature of intervention it was considering, the central bank said excessive rand volatility was a concern and could warrant action.