Asia markets rebound, Shanghai sees more volatility

[HONG KONG] Asian markets rebounded on Tuesday after the previous day's rout, despite Greece being just hours away from default, while Shanghai surged in volatile trading that saw swings of more than eight percent.

The euro edged down and analysts warned of sharp movements this week as Greece prepares for a Sunday referendum on creditors' bailout reform proposals, which European chiefs say boils down to a vote on whether the nation wants to stay in the eurozone.

Tokyo rose 0.55 per cent in the afternoon, Hong Kong climbed 1.62 per cent, Seoul put on 0.51 per cent and Sydney was 0.13 per cent higher in late trade.

Shanghai's roller-coaster ride continued, plunging more than 5.1 per cent in the morning before bouncing back to sit 3.22 per cent higher in the afternoon as bargain-buyers moved in after a recent hefty sell-off. Shenzhen was up 2.00 percent, having sunk more than six percent earlier.

Mainland Chinese markets are swinging wildly after plunging more than 20 percent over the past two weeks and analysts warned of further wide sharp movements in future.

The crisis sent markets tumbling across Europe and in New York.

The euro ended Monday higher but edged down on Tuesday.

It bought US$1.1194 and 136.92 yen in Asia, against US$1.1247 and 137.82 yen in New York.

"Right now the biggest surprise is that the euro is not materially weaker," Matthew Sherwood, head of investment markets research in Sydney at Perpetual Ltd, which manages about US$21 billion, wrote to clients.

"Market expectations are that the Greek situation is manageable even if they exit the union," he said, according to Bloomberg News.

The dollar edged up to 122.32 yen from 122.55 yen.

With talks between Athens' leaders and creditors now completely broken down after Prime Minister Alexis Tsipras called the July 5 plebiscite, Greece is widely expected to miss its payment to the IMF due later Tuesday.

"(How) is it possible the creditors are waiting for the IMF payment while our banks are being suffocated?" Mr Tsipras said in a late-evening interview on ERT television in Greece.

Failure to pay will leave the country in default, which could lead to it leaving the eurozone. However, top European leaders including Germany's Angela Merkel, France's Francois Hollande and Italy's Matteo Renzi called on the Greek people to vote for the creditors' proposals.

"A 'No' would mean, regardless of the question posed, that Greece had said no to Europe," said EU chief Jean-Claude Juncker, previously Tsipras's closest - and sometimes only - ally in five months of debt talks.

The decision to push ahead with the vote led Standard & Poor's rating agency to downgrade Greece's credit rating deeper into junk territory, saying it was now closer to default.

"The political timetable is now unclear due to the surprise of the referendum. We do not know the wording of the question or the questions that will be asked, and so the outcome risks creating even more uncertainty," David Gaud, is a senior fund manager at Edmond de Rothschild in Hong Kong, told AFP.

"The next big deadline is the payment expected on July 20 - to the ECB this time. With the IMF payment already outstanding, the coming month will remain very volatile".

CHINA VOLATILITY

In Shanghai dealers bought on the dip after heavy morning selling. The index had run up gains of 150 per cent in the year to June 12, when profit-takers moved in and authorities started tightening rules on margin trading, in which dealers borrow cash to invest.

The index lost more than three per cent Monday, putting it in a bear market and economists warned of further losses as retail investors cash up and margin trades are called in.

China's central bank at the weekend cut interest rates for the fourth time since November and also lowered the amount of cash lenders must keep in reserve.

Speculation is also swirling that officials are planning to halt initial public offerings in a bid to settle investors as they are often blamed for sucking up cash from markets.

"No one can tell for sure where the market's bottom is," said Castor Pang, head of research at Core Pacific-Yamaichi in Hong Kong.

"The government will need to take more measures to stop the market's freefall," Mr Pang told Bloomberg News.

"The market started to show signs of stabilisation with blue chip stocks starting to resist the market plunge," Yingda Securities chief economist Li Daxiao told AFP.

"Positive effects from rate cut, as well as news of pension fund planning to enter stock market, have started to kick in to support the market."

On oil markets US benchmark West Texas Intermediate for August delivery fell nine cents to US$58.24 while Brent added five cents to US$62.06 in late-morning trade.

Gold fetched US$1,177.05 compared with US$1,177.05 late Monday.

AFP