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Asian markets mixed amid China's economic fears

Asian markets were mixed as an initial burst of euphoria over an interest rate cut by China succumbed to lingering worries over longer-term economic problems.

China's benchmark, the Shanghai Composite Index, dropped late in the day, losing 1.3% after a volatile series of ups and downs. That followed a 7.6% slump on Tuesday and an 8.5% loss the day before. But stocks in Japan, South Korea and Australia gained.

Japan's Nikkei 225 stock index advanced 3.2% to 18,376.83, South Korea's Kospi gained 2.6% to 1,894.09 and Australia's S&P ASX/200 rose 0.7% to 5,172.80, helped by buying of resource-related shares. Shares also rose in Taiwan.

But Hong Kong's Hang Seng index fell 0.5% to 21,305.17, and mainland China's smaller Shenzhen Composite Index lost 3.1%. Markets were also lower in New Zealand and most of Southeast Asia.

Markets have been zigzagging for weeks on deepening unease over the ramifications of slowing growth in China, the driver of much of the global growth of the past decade.

Nicholas Teo, an analyst at CMC Markets, said: "All of a sudden, China and the performance of the Chinese markets have now taken the lead in determining daily direction for trading in stocks worldwide."

The apparent inability of Chinese regulators to calm the markets has spooked investors already fretting over when the US Federal Reserve will raise interest rates.

The Federal Reserve has signalled it could begin raising its key interest rate from near zero for the first time in nearly a decade as early as this year. But it is not expected to deliver a policy update until it wraps up a meeting of policymakers in mid-September.

In a last-minute sell-off Tuesday, the Dow Jones industrial dropped 1.3%, extending Wall Street's losing streak to six days, the longest such stretch in more than three years.

The Dow had surged more than 400 points on Tuesday after China cut its interest rates for the fifth time in nine months in a renewed effort to shore up growth. The central bank also increased the amount of money available for lending by reducing the reserves banks are required to hold.

Those moves have alleviated a crippling shortage of cash available for funding, but do not address the wider problems behind a slowdown that is crimping demand for oil and other commodities, slowing exports and other business activity across Asia.

"This move may help calm the markets in the short term. But it will likely not be enough to fix China's growth problem," Credit Agricole economists Sebastien Barbe and Gary Yau said in a research note.

The bigger, more intractable problem is how to rebalance the economy away from excess reliance on investment in construction and property investments without tipping the economy into contraction.

"Bottom line, China is not in a position to address both challenges at the same time today," they wrote.


From Belfast Telegraph