European shares rebound as China fears ease

Europe's main stock markets rebounded on Tuesday after the recent slump sparked by concern over a Chinese credit crunch and the withdrawal of US economic stimulus, dealers said. Asian shares mostly fell however on the back of growing concerns about a liquidity crisis in China, although the Shanghai market managed to claw back some ground after sinking more than five percent. London's FTSE 100 index of leading shares climbed 1.21 percent to close at 6,101.91 points, Frankfurt's DAX 30 index jumped 1.55 percent to 7,811.30 points, while in Paris the CAC 40 gained 1.51 percent to 3,649.82 points. Shares in Madrid climbed 0.72 percent, but Milan dropped 0.37 percent amidst concerns over the government's stability following the conviction of former prime minister and centre-right leader Silvio Berlusconi for paying for sex with an underage prostitute and abuse of office. On bond markets, yields on European and US bonds fell after recent sharp rises also caused by the US pullback in stimulus. "European markets have been pulled off their lows today after Chinese central bank officials pledged to keep tabs on interbank money market rates and keep them at reasonable levels," said analyst Michael Hewson at CMC Markets UK. While this has calmed the markets, the problems in the changing sector have the potential to hit Chinese growth prospects, he noted. Analyst Chris Beauchamp at IG Group said the upside from the Chinese central bank statement was likely to prove short-lived. "The change in Fed policy will take longer than a week to really sink in, and there will be some expectation that Bernanke will change course once he realises what havoc he has wrought. I think the volatility will persist throughout the summer," he told AFP. In foreign exchange deals on Tuesday, the European single currency slipped to $1.3084 from $1.3122 late in New York on Monday after data showed new orders for US manufactured durable goods surged by a better-than-expected 3.6 percent. The data also helped US stocks advance, with the Dow Jones Industrial Average climbing 0.71 percent to 14,764.15 points in midday trading. The broad-based S&P 500 added 0.86 percent to 1,586.63 points, while the tech-rich Nasdaq Composite Index rose 0.61 percent to 3,340.96 points. US home prices also posted record gains, suggesting recovery may be on the way in the key sector still struggling to overcome the 2007 crisis in the mortgage lending market. -- Focus also on China -- The focus in Asia was on China, where investors have been spooked by the cash crunch, which could in turn drag on the nation's powerhouse economy. The central People's Bank of China (PBoC) added to those worries on Monday when it ruled out providing any fresh money to bolster markets and ordered lenders to get their own houses in order. In response, Tokyo stocks fell 0.72 percent, Seoul lost 1.02 percent and Sydney slipped 0.28 percent in value. And Shanghai finished 0.19 percent lower, with bargain-hunting helping it bounce from a second successive fall of more than five percent earlier in the day. "We have had a decent turnaround in European share markets Tuesday, pulled up by a late-recovery in Asian markets after the Chinese central bank attempted to assuage recent market fears about the soaring cost of funding Chinese banks," added ETX Capital strategist Ishaq Siddiqi in London. Hong Kong stocks added 0.21 percent, reversing earlier losses. On the London Bullion Market, the price of gold eased to $1,279.00 an ounce from $1,286.75.