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China: Shares dip, still clinging to gains for week

China stocks recovered much of their earlier losses by the end of a volatile session on Wednesday, ending slightly lower.

[SHANGHAI] China's fragile stock markets started weaker on Thursday after Wall Street struck its lowest levels since 2014, though the main indexes for Shanghai and Shenzhen bourses still clung to gains for the week.

The benchmark Shanghai Composite Index fell 0.6 per cent in early trade, with losses led by the utility and industrial sectors. Though the index has slumped nearly 17 per cent in 2016, it remains 2.6 per cent higher for the week so far and has found support under 2,900, which could suggest a near-term base is forming.

The CSI300 index of the largest listed companies in Shanghai and Shenzhen eased 0.4 per cent. It has lost more than 15 per cent since the beginning of the year.

The currency also had a volatile start to 2016, but the People's Bank of China (PBOC) has kept a steady course for the yuan's daily midpoint fix, from which it can vary by up to 2 per cent, for two weeks. The Thursday fix was barely changed at 6.5585 per dollar.

The central bank was also generous with liquidity ahead of the Lunar New Year holiday by injecting a net 315 billion yuan (S$69 billion) into the banking system for the week, a much larger chunk of cash than it provided ahead of the holiday period last year.

The PBOC has acted aggressively to deter speculators from shorting the yuan, which has fallen about 5 per cent since August and encouraged a destabilising outflow of capital.

On Wednesday, the central bank said that it would improve policy coordination to promote economic growth and curb financial risks, though it provided no details on steps or timing.

Two surprise yuan devaluations in six months and a cooling economy have only reinforced market expectations that something will have to give.

Speculators have taken to using the yuan's cheaper offshore forwards market to wager China will finally devalue the currency around March or April.

The yuan is not the only currency under fire, with the Hong Kong dollar falling to its lowest in more than eight years on Wednesday as the market tested the city's long-standing peg to the US dollar.

Concerns the central bank would have to tighten monetary policy to defend the currency helped send local stocks to their lowest in three-and-a-half years.

Both the Hong Kong dollar and its stock market started firmer on Thursday, however.