Markets lifted after Chinese stimulus, but Greece still a worry

SINGAPORE — Asian stock markets surged yesterday after China’s latest step to prop up its economy lifted global sentiment, while European shares were mixed as mounting worries about a possible Greek default kept gains in check.

Among the key bourses in Asia, China’s Shanghai Composite Index jumped 1.8 per cent as investors piled into small-cap stocks in feverish trade, betting on further gains despite stretched valuations and a warning from the official Xinhua news agency against irrational exuberance.

Hong Kong’s Hang Seng Index soared 2.8 per cent, Japan’s Nikkei-225 Index rose 1.4 per cent, while Singapore’s Straits Times Index gained a more modest 0.2 per cent.

China’s central bank on Sunday cut the amount of cash banks must hold as reserves in its latest attempt to spur lending and combat a slowdown in the world’s second largest economy.

The cut in banks’ reserve ratio requirements by 100 basis points to 18.5 per cent by the People’s Bank of China (PBOC) is the largest since the global financial crisis.

“The PBOC’s action undid the damage caused by the crackdown (on speculative buying in Chinese stocks on Friday). There could be more stimulus down the road,” said Mr Hirokazu Kabeya, chief global strategist at Daiwa Securities.

Chinese securities regulators announced after the market closed on Friday that they would ban margin financing through unregulated accounts and allow fund managers to lend shares for short-selling.

In late European trade yesterday, key bourses were flat to 0.6 per cent higher, while the Athens Stock Exchange fell 3 per cent.

While the Chinese stimulus and corporate earnings helped sentiment, investors were cautious about chasing shares too much higher amid continued uncertainty over Greece’s acute funding problems that could lead the country to leave the eurozone.

Even after several rounds of negotiations, Greece did not appear to be able to present detailed plans that would satisfy eurozone finance ministers to continue their financial support at their meeting on Friday. That means Athens may be running out of cash by the end of this month.

While an unprecedented debt default in the currency bloc may open the way for Greece to exit the eurozone, European Central Bank vice-president Vitor Constancio said yesterday that a country that defaults would not have to leave the monetary union. AGENCIES