By Marc Jones
LONDON (Reuters) – Chinese shares slumped 5 percent on Friday, hit by regulatory & industrial sector worries, though it wasn't enough to derail the first weekly rise for metals like copper & zinc since early October.
The Shanghai Composite index <.SSEC> & the CSI300 <.CSI300> both saw their biggest one-day drops in more than three months & ensured it was set to be a subdued post- Thanksgiving session for Wall Street. [.N]
Europe had a flat feel too. The FTSE 100 <.FTSE> was down 0.2 percent by 1230 GMT though 0.2 percent gains for France's CAC40 <.FCHI> & Germany's DAX <.GDAXI> left the pan-regional FTSEurofirst 300 heading for a token weekly gains.[.EU]
"There is clearly a risk that China will try & devalue the currency further," said Ankit Gheedia, equity & derivative strategist at BNP Paribas.
"(However) Europe is still trading on the ECB next week, which is why the market is relatively resilient," he said referring to expectations of another round of stimulus.
The intensive selling in China had come amid signs its securities regulator was making a fresh clampdown on leveraged buying & combined with data showing a 4.6 percent drop in profits among huge industrial firms.
The mining industry was the laggard with profits down 56.3 percent in the first 10 months of the year. Overall it was moreover the fifth straight monthly drop in profits, underscoring the pressure currently on China's giant economy.
The slump in Shanghai stocks brought a 25 percent rebound rally since late August to a shuddering halt & contributed the lion's share of a 1.1 percent weekly drop in MSCI's broadest index of Asia-Pacific shares outside of Japan <.MIAPJ0000PUS>.
Japan's Nikkei <.N225> closed down 0.3 percent too though it ended the week marginally highly to extend a winning streak that started in the second half of October. [.T]
The jittery China mood ensured euro zone bond yields, which move inverse to price, nudged lower again as investors moreover kept positioning for the next salvo of ECB stimulus, expected at the central bank's Dec. 3 meeting.
They are paying more than ever for the privilege of owning shorter-term German , French , Dutch government bonds & yields on benchmark 10-year yields are moreover sliding again. [GVD/EUR]
"The market is anticipating the ECB to act swiftly & decisively next week," said DZ Bank strategist Christian Lenk, highlighting bets that Mario Draghi & his colleagues will continue to hike up the cost of sitting on cash for banks.
"If you take the two-year Schatz (German) yield as the benchmark for the (ECB) deposit rate, the market expects a cut in the deposit rate by 20 bps to minus 0.40 percent, which we think is thinkable."
NOT SO HEAVY METALS
The major currency pairs like the euro-dollar & dollar-yen were largely quiet as traders opted for caution over valour ahead of the ECB meeting & what is expected to be the first rise in U.S. interest rates in almost a decade next month.[FRX/]
The Swiss franc fell to its lowest against the dollar since August 2010 & dropped more than half a percent against the euro on speculation the Swiss National Bank will cut its rates even deeper into negative territory if the ECB moves.
The day's China theme was moreover compounded as the yuan hit its lowest level in almost three months as investors braced for the International Monetary Fund's decision on Monday on whether to include the currency in its reserve basket.
Spot yuan was changing hands at 6.3942, 46 pips weaker than the previous close & approximately 0.04 percent away from People's Bank of China's midpoint rate of 6.3915.
"Itâ€™s uncertain if the Chinese government is keen to show the market influence in their rate setting or whether now that they know they have gained special drawing rights inclusion they are keen to weaken their overvalued currency knowing it will not jeopardise their case," Angus Nicholson, market analyst at IG in Melbourne, wrote in a note.
For industrial metals, which have been being battered this year by worries approximately China's slowing economy & oversupply, it was a day in the red yet not all gloomy news.
Global & particularly China growth-linked copper, aluminium & zinc all headed for their first weekly gain since early October.
With the dollar hovering near an 8-1/2 month high the pressure remains on commodity prices though.
Gold was near a six-year low & oil edged lower, though both U.S. crude futures which were at $42.30 a barrel & Brent at $45.43 a barrel, were up roughly 4 percent & 1 percent respectively for the week. [O/R][GOL/]
(Additional reporting by Alistair Smout & Dhara Ranasinghe; Editing by Toby Chopra)