Asian shares rebounded on Friday, led by strong gains for battered Chinese stocks after China suspended its market circuit breaker and set a firmer midpoint rate for trading of the yuan for the first time in nine days.
Shares in Asia were still on track for their biggest weekly fall in more than four months, but Friday’s advances seemed to reduce some of the fears that have hit global markets.
China announced late on Thursday it suspended its new stock market circuit breaker introduced only on Monday as the system failed to reduce market volatility, with some market players even saying it backfired.
The CSI300 index of major Shanghai and Shenzhen stocks was up 2.7% and the Shanghai Composite climbed 2.4%.
The gains shrank losses for the week for both to less than 10%.
Higher Chinese stocks also supported MSCI’s broadest index of Asia-Pacific shares outside Japan, which erased earlier losses to be up 0.6%. That put it on track for a loss this week of about 6%, which would be its biggest fall since August.
The People’s Bank of China (PBOC) helped soothe markets by setting a stronger yuan midpoint rate against the dollar. It set the rate at 6.5636 per dollar prior to market open, firmer than both the previous fix and Thursday’s closing quote. The spot market opened at 6.5700 per dollar, and was trading at 6.5887 at 0313 GMT.
The Chinese central bank on Thursday wrong-footed traders by reportedly intervening heavily to defend the yuan in offshore trade, reversing a decline of more than 1 percent that took it to a record low of 6.7600 per dollar.
The PBOC’s Friday setting is “a signal it does not intend to keep allowing the yuan to fall,” said Yoshinori Shigemi, global market strategist at JPMorgan Asset Management.
Wall Street also had a gloomy session, with the S&P 500 losing 2.4% on Thursday, with 40% of the stocks in the benchmark trading 20 percent or more off of their highs, the definition of a bear market.
That was despite a drop in layoffs and the number of Americans filing for jobless benefits, pointing to a strong December employment report on Friday.
However, weak data on US manufacturing, construction spending, auto sales and export growth prompted economists to slash their fourth-quarter GDP growth estimates by as much as one percentage point to as low as a 0.5% annual pace. The economy grew at a 2% annual rate in the third quarter.