Yahoo Finance Market Mayhem: Europe Volatile Amid Fightback
European stock markets are tentatively putting on some weight after China moved to reassure investors that its credit tightening policy would not damage liquidity.
Asian stock markets suffered steep falls during much of Tuesday's session - with the Shanghai Composite Index entering bear market territory, analysts said, following falls of more than 5% at one stage on top of steep declines on Monday.
But Tuesday's losses were largely erased in late-trading - with Shanghai (Shanghai: 000003.SS - news) just 0.2% down - after the People's Bank of China (PBC) moved to clarify its earlier intervention, aimed at curbing a cheap credit boom.
The worry for investors - particularly those in small banks - was that higher commercial lending rates would damage the banks and growth in the world's second-largest economy.
The crackdown left markets in China particularly fearing a liquidity squeeze though early trading in Europe (EUREX: FMEU.EX - news) was nervous on Tuesday.
Shanghai's stock index had endured its biggest loss in four years in the previous day's session while the pain was also felt worldwide, with the US and European markets falling back further, having already been spooked in recent weeks by the prospect of the US Federal Reserve easing its $85bn-a-month bond-buying programme.
A top US central banker warned on Monday against market attempts to lift the yields on US Treasuries and stop plans to slow the Fed's stimulus.
Richard Fisher, who is president of the Dallas Federal Reserve, told the Financial Times that "feral hogs" would not break the Fed's resolve.
The FTSE 100 share index lifted 0.7% in early trading on Tuesday from five-month lows while there were stronger gains on the continent which were all seen as adding value because of under-valued stocks.
The momentum behind the clawback intensified into afternoon trading but the London market has lost more than 10% of its value since concerns first arose last month about the prospect of Fed stimulus easing.
In his final evidence session to the Treasury Select Committee as governor of the Bank of England, Sir Mervyn King said he believed that markets had "jumped the gun" about when central banks were likely to start raising base interest rates, amid the stimulus debate.
He said: "I think people have rather jumped the gun thinking this means an imminent return to normal levels of interest rates. It doesn't."
He added that economic growth would need to be stronger before interest rates could be increased.
More From Sky News
