World shares struggled to stay above water on Wednesday as concerns over opaque policy moves in China kept investors on edge amid a scarcity of major economic data.
Chinese share markets and the yuan had stabilised overnight after sharp falls on Tuesday as the central bank continued its gradual squeeze on the yuan.
Dealers suspect the People's Bank of China has engineered the recent decline in its currency to inject more two-way volatility into the market and wrong-foot speculators who had amassed huge positions wagering on its continued rise.
The government said on Wednesday in comments published on the State Administration of Foreign Exchange (SAFE) website the drop in the yuan was, "due to an adjustment of trading strategy by main market participants." It added: "Fluctuations are normal compared to volatility in developed and emerging market currencies. Don't read too much into them." (www.safe.gov.cn)
The more relaxed mood saw a largely quiet start for European markets. The main share bourses in London, Frankfurt and Paris opened down 0.4, 0.2 and 0.3 percent respectively, weighed down by falls in major Swiss banks Credit Suisse and UBS.
Sterling was steady as updated but unrevised UK fourth-quarter GDP data hit the wires, while there was little movement from euro or from benchmark euro zone bonds.
In Asia earlier, MSCI's broadest index of Asia-Pacific shares outside Japan crept ahead by 0.28 percent as the China nerves cooled, with South Korea, Taiwan and the Philippines all fractionally firmer.
In Tokyo, the Nikkei 225 pared early losses to be off 0.2 percent, following a 1.4 percent gain on Tuesday.
Economic data from the United States was too mixed to offer a lead. A closely watched housing survey showed home prices rose slightly more than expected in December, though February consumer confidence fell short of expectations.
In Europe there were more signs of recovery gradually putting down roots.
Germany's GfK sentiment survey showed consumer morale rose to its highest level in seven years, a counter to the previous day's Q4 GDP data which showed marked weakness in domestic demand.
"The market is just spinning its wheels today and worrying itself about China," said National Australia Bank strategist Gavin Friend. "What we are really thinking about is (euro zone) inflation data (on Friday) and the PMI's, the ECB meeting and the non-farm payrolls next week."
The cautious tone in markets was also warranted ahead of testimony from Federal Reserve Chair Janet Yellen due Thursday, where she is bound to draw questions on the recent spate of soft U.S. economic news and what it might mean for policy.
Futures prices pointed to Wall Street nudging back to this week's all-time high when trading resumes later, but yields on 10-year U.S. Treasury notes were steady at 2.705 percent after dipping about 5 basis points.
Both the record level on Wall Street and the drift lower in Treasuries has come as the recent soft U.S. data has raised suspicions that the Federal Reserve will now be extra cautious as it looks to scale back its stimulus programme.
Gold, which has been one of the major winners from the shift in sentiment as well as the uncertainty coming from China, pushed to four-month top at $1,343.40 an ounce.
Ukraine's political uncertainty and fears it is fast running out of reserves saw the hryvnia hit record lows of 10 per dollar on Tuesday while Ukraine's 2017 dollar bond <ua080875819= fell> fell further.
Russia's rouble also continued to drop as its weakened to 42 against a dollar-euro basket for the first time.
After falling sharply on Tuesday, China's yuan was looking more stable so far on Wednesday. It was quoted at 6.1283 per dollar, little changed from Tuesday's close.
The Chinese currency has been a favourite among emerging market currencies in 2013, gaining nearly 3 percent even as most of its peers depreciated against the dollar. Most analysts expect it to appreciate another 2-3 percent this year, but the change in direction has rattled confidence.
Some analysts believe the PBOC may be preparing the markets for more reforms.
"Putting such a warning shot over the bows of the FX community could also be seen as a sensible move ahead of any possible widening of the CNY's trading band," said Patrick Perret-Green, an analysts at Australia New Zealand Bank.
ANZ believes the band will be widened to 2 percent from 1 percent within the next couple of months, a move toward liberalisation that should be seen as a positive step.
Among major currencies, dealers reported scant activity ahead of the month end and a slate of major global data next week. The dollar inched up on the yen to 102.33, but could make no headway on the euro at $1.3748.
The single currency has been corralled in a $1.3685-$1.3773 range for the past six sessions as traders debate whether the ECB will ease its policy next week.