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Asian markets sink as Shanghai falls further

Hong Kong - Asian markets tumbled further on Tuesday, dragged down by another massive sell-off in Shanghai a day after the mainland Chinese market's heaviest one-day losses in more than eight years.

Fears of a resumption of the rout that strafed Chinese shares over a month until July 8 sent global traders running on Monday, with Wall Street falling for a fifth day in a row and safe-haven gold edging back up after a recent slip.

The dollar weakened against the yen on risk-aversion while analysts said the latest crisis on Chinese markets could affect Federal Reserve policymakers' decision when considering hiking interest rates.

Shanghai, which collapsed 8.48% Monday, fell a further four percent on Tuesday, while Hong Kong was 0.50% down. Tokyo shed 1.07%, Sydney was 0.89% lower and Seoul retreated 0.83%.

Chinese investors rushed for the exit on Monday as more data showing the economy still struggling mixed with fears that government measures to prevent a market crash - including providing vast sums of cash to support shares - will not last.

The moves - introduced after a more than 30% dive that wiped trillions off valuations in just under four weeks - had been credited with helping to stem the bleeding, stabilise trading and put prices back on an upward trajectory. The market had surged more than 150% in the year to hitting a near-term peak on June 12.

Tuesday's losses came despite assurances from Beijing that it will unleash more cash to provide stability to jittery share markets.

State-backed China Securities Finance Corporation (CSFC), which has reportedly already pumped billions of yuan into mainland equities under a government plan, will continue to buy stocks, the state-run Xinhua news agency reported.

Return of volatility

"The worst time has passed but we think there is a final leg for this correction," Steve Yang, strategist at UBS Group AG, said. "Fundamentally there is no reason for funds to come in and buy aggressively."

However, Zhang Yanbing, an analyst at Zheshang Securities, told AFP: "It's a normal correction of the market since it rose too much before."

Shares had climbed about 17% since hitting a trough on July 8.

Analysts said the events could be a key issue on the agenda when the Fed's policy meeting takes place this week. While it is not expected to lift interest rates now, dealers are hoping for some guidance on its plans.

"The return of market volatility in China will be a significant discussion point at the US Fed in terms of what this is telling us about the Chinese economy," Matthew Sherwood, Sydney-based head of investment strategy at Perpetual, said. "There is a lot of global weakness and significant external risk."

The dollar eased to ¥123.19 early on Tuesday, from ¥123.24 in New York and well off the ¥123.75 earlier in Asia.

The euro changed hands at $1.1089 and ¥136.68 against $1.1091 and ¥136.69 in US trade.

Gold, which is considered a safe bet in times of crisis, fetched $1.095.66 an ounce compared with $1.096.60 late on Monday but it is much higher than the $1 080.50 at the end of last week.

Oil prices continue to suffer from fears about the global economy as well as an oversupply of the commodity.

US benchmark West Texas Intermediate for September delivery was down 30 cents to $47.09 and Brent crude for September dropped 40c to $53.07.

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