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Shanghai index plunges 7 per cent, drags down Asian markets

Some see the tactic as a desperate attempt by China to shore up its economy, prompting concerns that the world’s second biggest economy could be even weaker than imagined.

Authorities were allowing the yuan to “move more flexibly”, Societe Generale s China economist Claire Huang told AFP.

Global stocks tumbled, with China’s Shanghai Composite Index closing almost 7% lower.

Global equity markets traded slightly lower yesterday after their worst first-day performance in years as concerns about the global economy weighed on sentiment and pushed traders to seek the relative safety of the low-risk yen.

Nervousness about the ongoing contraction among the Chinese manufacturers despite Beijing’s surprise devaluation in August sent traders to embrace traditional low-risk yen and Swiss franc.

“While fiscal support has helped slow the rate of economic deceleration, China needs to balance the need for stimulus with the reality of the unsustainable buildup in debt”. Japan’s Nikkei dropped 1.1 percent.

“The use of the circuit breaker is the main reason for the falls as investors panicked after seeing it being triggered on Monday”, Phillip Securities’ analyst Chen Xingyu told AFP.

New yuan funds outstanding for foreign exchange refers to the amount of yuan Chinese banks put into the domestic market when they acquire foreign currencies from individuals or companies.

The drag from industry comes as China makes gradual progress in its transformation to a more service-driven economy. The FTSE 100 index of leading British shares rose 0.7 percent higher.

WALL STREET: U.S. markets finished 2015 lower on Thursday. The events of last August were clearly influential in the Fed opting to hold off on raising interest rates in September and I am convinced that has this week come a month earlier, the Fed would probably have held off once again in December.

Furthermore, the end next Monday of a 6-month “lockup” on Chinese share sales by major institutional investors, may cause a massive evacuation from stocks, many fear. Big global banks forecast a 7 to 10 percent weakening of the yuan over the next 12 months, but it has begun the year with a decline of nearly 2.5 percent in just three days. South Africa’s benchmark share index slid as much as 3 percent to the lowest since December 14.

MIDDLE EAST: Saudi Arabia said Sunday it is severing diplomatic relations with Iran after protesters set fire to the Saudi Embassy in Tehran and Iran’s top leader criticized the world’s largest oil supplier for executing a prominent Shiite cleric.

The Japanese currency, traditionally sought at times of risk aversion, climbed to its strongest level since April against the euro and hovered at its highest since October versus the dollar.

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