Chinese shares ended only modestly lower on Monday as trade resumed after a long holiday, largely shrugging off last week's tumble on global markets, while Beijing took another swipe at currency devaluation talk with a strong fix for the yuan.
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Both the CSI300 index of the largest listed companies in Shanghai and Shenzhen and the Shanghai Composite Index ended down 0.6 percent after their first day of trade since Feb. 5.
The losses were unexpectedly light, given Japan's Nikkei alone sank 11 percent last week, though the Chinese indexes have had a more brutal 2016, losing about 22 percent and 12 trillion yuan ($1.84 trillion) in market value so far.
The bourses initially opened down more than 2 percent, but a strong rally elsewhere in Asia, especially Japan, and a rise in the yuan lured investors back to the market.
"Many traders exited their positions ahead of the holiday, and the weak opening gave them a chance to buy back some shares," said David Dai, Shanghai-based investor director at Nanhai Fund Management Co.
"Previously, there was strong yuan depreciation fears. Now, the currency has strengthened, and that is also a market-stabilizing factor," he added.
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Brokerage Industrial Securities said in a report that Chinese shares could even post a modest rebound in February as currency fears dissipated, which would in turn ease pressure on capital outflows and give the People's Bank of China (PBOC) more room for monetary stimulus.
The PBOC fixed the yuan at its highest rate in over a month as it continued efforts to stem devaluation speculation.
Reflecting the recent retreat in the U.S. currency, the Monday fix of 6.5118 yuan per dollar, a reference point for trading, was much stronger than the 6.5314 set before the holiday, and the onshore spot rate firmed more than 1 percent to 6.4972.
The offshore yuan was also firmer and in step with the onshore rate, eliminating a discount that had made it more difficult for the central bank to stem capital outflows.
WEAK TRADE DATA
In an interview over the weekend, PBOC Governor Zhou Xiaochuan said speculators should not be allowed to dominate market sentiment regarding China's foreign exchange reserves and it was quite normal for reserves to fall as well as rise.
Zhou said there was no basis for the yuan to keep falling, and China would keep it stable versus a basket of currencies while allowing greater volatility against the U.S. dollar.
China reported its weakest economic growth in 25 years for 2015, and on Monday it released figures showing imports and exports both fell more sharply than expected in January compared with a year earlier.
Chinese markets appeared to shrug off the disappointing trade numbers, though they will add to worries about a global economic slowdown.
Figures out over the weekend suggested there was still life in the Chinese consumer, however, with retail sales growing 11.2 percent during the week-long Lunar New Year vacation compared with the same period last year.
The holiday is especially important for retailers, which vie for customers by launching promotions and discounts. Millions of people take time off work to travel and generally spend more than usual during the break.
(Additional reporting by Jianxin Lu; Writing by Wayne Cole and Will Waterman; Editing by Kim Coghill)