FTSE Bounces Back As China Tumbles Again

The FTSE 100 Index has bounced back after so-called 'Black Monday' - one of the bleakest days in its recent history.

London's top-flight shares soared more than 2.5% to comfortably pass the 6,000 barrier after losing £74bn yesterday .

This was despite Chinese stocks tumbling again on Tuesday morning - plunging more than 7%, and hitting their lowest level in eight months. Japan's Nikkei fell nearly 4%.

:: Stock Markets Open After Black Monday

Panic selling intensified after the flagship Shanghai Composite Index crashed through the psychological barrier of 3,000 points.

The blue-chip CSI300 index fell 7.1% to 3,042.93, while the Shanghai Composite Index lost 7.6% to 2,964.97.

There was a recovery in European shares, after they lost around £387bn during Monday's panic.

The pan-European FTSEurofirst 300 index, which slumped 5.4% yesterday, rose 2.5%, while the eurozone's blue-chip Euro STOXX 50 index was up 2.3%.

However, the FTSEurofirst is still at risk of posting its biggest monthly loss since 2002, having fallen more than 10% so far in August.

US shares were up 2% when the Dow opened on Tuesday afternoon.

On Monday, it plummeted by an unprecedented 1,000 points, before closing down 588 - its worst decline for four years.

"In much the same way as we had a broad mark down yesterday, we've had a broad pull up today," said Richard Hunter, head of equities at Hargreaves Lansdown (LSE: HL.L - news) .

"It (Other OTC: ITGL - news) 's possible that the market is now considering that it might have overshot slightly yesterday."

Sky (LSE: BSY.L - news) 's Tadhg Enright said around £188.5bn has been wiped off the value of FTSE 100 companies over the past two weeks - when the turmoil began, sparked by China's devaluation of its yuan currency.

"It means British shares are now on average back to where they were at the beginning of January 2013," he said.

Goldman Sachs (NYSE: GS-PB - news) has reduced its three-month outlook for the FTSE to 6,000 points from 6,900 points, although it believes the global economy is not at risk of recession.

The mass sell-off was triggered by China's slowing economy - as well as plunging commodity prices and fears over the timing of the next US interest rate hike.

The People's Bank of China (HKSE: 3988-OL.HK - news) is under pressure to announce a new round of quantitative easing to boost money supply in an economy suffering weaker demand across all sectors.

Beijing has intervened numerous times to try to stop speculators selling vulnerable assets, including allowing the state pension fund to invest up to 30% of its assets in Chinese stocks.

After Tuesday's rout, it tried to boost the economy by cutting interest rates for the fifth time since November.

However, China's policymakers have largely sat on their hands during the last few days of bloodletting - to the frustration of investors hit by plunging portfolios.

Sky's Katie Stallard, in Beijing, said people are taking to Chinese social media to ask why the government is not doing more to stop stocks crashing.

"I think for the Chinese government, this is as much a political problem as it is an economic problem, that their legitimacy, their authority among the populace here is based upon this prosperity for the Chinese economy," she said.

"They sense that everyday life is getting better, and they will be keenly aware that if people are starting to lose their savings, people are beginning to feel less well off, then the next logical step from that could be to lose their trust, lose their confidence in the government."

Countries heavily exposed to China's slowing economy have tried to soothe fears about the prospect of a global downturn.

"I think it's important that people don't hyperventilate about these type of things," said Australian Prime Minister Tony Abbott, whose country is China's biggest commodity supplier.

"It is not unusual to see stock market corrections. It is not unusual to see bubbles burst in particular markets and for there to be some flow-on effect in other stock markets, but the fundamentals are sound."

Japanese Finance Minister Taro Aso also said Chinese stocks, which more than doubled in the six months to May, was a bubble now bursting.

"There's also suspicion on whether China's official GDP figures reflect the real state of the economy," he told a news conference in Tokyo.

Many analysts predict a continued deceleration - rather than crash - for China's economy, and dismiss comparisons with the 2008 global depression or the Asia crisis 10 years before that.