Beijing (AsiaNews/Agencies) – Shanghai Stock Exchange started the morning session at 0.25 per cent higher after tumbling 8.84 per cent yesterday, its biggest one-day fall in 10 years dragging down the world’s bourses. By the end of the day, it rose 3.94 per cent to 2881.07, while the Shenzhen Composite Index gained 3.8 per cent.  “It seems that most investors are not as panicked as yesterday,” said Cao Yan, a securities analyst.

However, the decline continued in the rest of the region as investors cut their losses. Hong Kong share prices fell sharply in early trade today, down 3.58 per cent. Tokyo Stock Exchange’s benchmark Nikkei-225 Index also fell 3.5 per cent at the open. In Malaysia, Singapore, India and South Korea the negative trend continued as well. In Taiwan Wednesday is national holiday so the stock market was closed.

In China the stock market climbed more than 130 per cent in the last 12 months, prompting regulators to repeatedly warn that share prices were far ahead of themselves and many investors risked losing their money if the bubble burst.

In Shanghai more than 900 A shares hit the 10 per cent down limit, led by banks, property, steel and auto companies for an estimated 1 trillion yuan (US$ 107.8 billion) wiped off the market's capitalisation.

In the smaller Shenzhen bourse, share values plunged 8.5 per cent.

The same trend was felt around the world. Yesterday in Tokyo, the Nikkei-225 share index closed down 2.9 per cent. In Hong Kong the Hang Seng index fell 2.5 per cent.

For Masayoshi Yano, a senior market analyst in Japan, the selling that started in China and affected the United States and Japan. “There was no way for Tokyo to avoid that,” he said. “This fall is not about Japanese shares themselves.”

European and US stocks also fell. In New York the Dow Jones was down by 3.3 per cent, the largest drop since the September 11, 2001.

Investor sentiment was also punctured by former US Federal Reserve chairman Alan Greenspan who said the world’s biggest economy could be heading into recession.

Metal and mining stocks were particularly hard hit because of concerns over demand from China, which has been the driving force behind record prices for raw materials in recent years.

Some analysts like Lu Fangxing said Tuesday’s rout was more likely the result of overzealous selling after one major institution cashed out its holdings. This set off panic selling as investors tried to dump shares.

Others also said the sell-off on Tuesday was partly due to fears provoked by announcements by the Chinese government that it was going to prevent bubbles, fight inflation and reduce market liquidity. Rumours that it would impose a 20 per cent capital gains tax accelerated the downward trend.

Today China’s finance minister denied that the central bank was going to raise the required reserve ratio for banks after the Lunar New Year in a move to reduce market liquidity.

Others suggest that the drop was the result of China’s anti-corruption campaign and indictment of tens of thousands of government officials every year which has had the effect of reducing capital investment. (PB)