Chinese stocks bounced back Wednesday after their biggest decline in a decade, but stock markets elsewhere in Asia and Europe fell for a second day amid investor worries about slowdowns in the Chinese and U.S. economies.
Shares in Japan, South Korea, Singapore, Malaysia, India, Australia and the Philippines all tumbled more thantwo per cent after Wall Street suffered its worst day since the Sept. 11, 2001, terrorist attacks.
But as the day progressed, several Asian markets trimmed big early losses, and analysts said the sell-off was most likely a temporary correction to cool overheating markets, though they warned that markets would likely remain volatile for a while.
"We don't need to worry about a big reduction from here, but this correction could continue for the next couple months," said Shinichi Ichikawa, an equity strategist with Credit Suisse in Tokyo.
Japan's Nikkei 225 stock index tumbled 2.85 per cent to 17,604.12, while Philippine stocks plunged 7.9 per cent, their worst drop since 1997, at the height of the Asian financial crisis.
Some investors used the drop as an opportunity to go bargain-hunting. Malaysian stocks, after falling as much as 8.2 per cent, closed down 3.3 per cent. Australian stocks closed down 2.7 per cent after falling as much as 3.5 per cent.
In Europe, Britain's benchmark FTSE 100 Index lost 1.8 per cent, while France's CAC 40 Index slipped 1.3per cent after opening down more than twoper cent. In Frankfurt, the DAX index fell 1.5 per cent to 6,715.44.
Meanwhile, China's Shanghai Composite Index bounced back 3.9 per cent to close at 2,881.07, rebounding from its 8.8 per cent plunge Tuesday— its biggest drop in a decade— which triggered the global sell-off.
Bullish comments in China's state-controlled media appeared to reassure anxious domestic investors, who account for virtually all trading.
China will focus on ensuring financial stability and security, the official Xinhua News Agency cited Premier Wen Jiabao as saying in an essay due to be published in Thursday's issue of the Communist Party magazine Qiushi.
Authorities also denied rumours of a 20 per cent capital gains tax on stock investments— speculation that had played a role in Tuesday's plunge.
Many Asian markets were due for a correction after their recent spectacular performance, analysts said.
Benchmark indexes in China, Australia and Singapore had all hit records in February. Before this week's plunge, Malaysian stocks had gained 17 per cent this year, while Philippine shares had climbed about 12 per cent.
Wednesday's sell-off was a limited, knee-jerk response, said Kiichi Fujita, an equity strategist with Nomura Securities in Tokyo. "It's a bit of an overreaction," he said.
Other equity analysts said the market's volatility could trigger more sell-offs, despite sound economic data.
"A lot of that exuberance about just buying anything at all cost just starts to evaporate if the market has big falls like this," said David Halliday, associate director at Macquarie Equities. "I think the important thing to note is that this hasn't been triggered by an economic, financial or political crisis."