U.S. stock futures rose 1.5 percent on Thursday after a sharp drop in the cash index overnight, limiting Asian share losses, though focus will shift quickly to how European markets hold up to a sovereign debt crisis that has spread to its banking system.
The Australian dollar, often a measure of investors' willingness to take risks, bounced toward $1.03 as Asian equities pulled back from their lows,
suggesting traders and investors were being nimble rather than selling with blinders on in the face of risks to global growth.Trading was whippy and positions were built, slashed and then rebuilt within an hour. Europe's devolving crisis was too complex and disturbing to make any long-term bets.
Fast-moving rumors about a sovereign debt downgrade of France as well as talk doubting the health of French banks swirled in Europe caused on Wednesday the biggest widening in the benchmark index of European credit default swaps since the credit crunch in 2008.
European policymakers have been struggling to keep the euro zone's government bond markets from being savaged, but Wednesday's price action suggested the problems may have spread to the private sector.
"The market is in a bit of heat-seeking missile mode looking for vulnerabilities around the world, and Europe is obviously in its sights at this point in time," said Grant Turley, senior strategist at ANZ in Sydney.
The three major rating agencies reaffirmed France's AAA rating on Wednesday, and said its outlook was stable, but markets remain concerned that French banks are among the most exposed to a worsening of Europe's government debt crisis.
GETTING DOMESTICATED
Japan's Nikkei share average fell 1.3 percent in early trade, not far from the five-month low hit on Tuesday.
Carmakers and machinery makers also dropped as investors continued their shift into domestic-demand related and defensive sectors such as pharmaceuticals and retail from cyclicals, on worries over the state of the global economy and the strong yen.
Expectations the Bank of Japan would step in the market to buy Nikkei exchange traded funds also limited the selloff in Tokyo.
The benchmark MSCI Asia Pacific ex-Japan stocks index was unchanged on the day, helped by outperforming telecommunications and consumer-related shares.
The index has fallen 13 percent so far in August, in line with the all-country world index, suggesting investors were not being so discriminating in the equity sell-down.
"I think the EU debt problem is far bigger a concern for Asia than the U.S. downgrade as investors are continuing to buy U.S. Treasuries anyways," said Francis Cheung, senior strategist with Credit Agricole CIB in Hong Kong.
"I think we can see some rebounds here and there, but overall the sentiment is still very cautious."
AUSSIE BOUNCE
The euro bounced as equities recovered from their lows, though was still vulnerable, especially against the yen and Swiss franc.
The euro was at $1.4225, up 0.3 percent on the day, though locked within a tight trading range by a debt crisis in Europe and a U.S. slowdown.
High-yielding currencies were popular, with the Australian dollar up 0.9 percent to $1.0240, holding above Tuesday's drop to below parity but well off from $1.10 where the currency started the month.
Commodities were a mixed bag, with copper prices jumping, oil slipping while precious metals slid as equities staged a comeback.
Spot gold prices were down 0.7 percent to $1,781.89 an ounce after earlier hitting an all-time high of $1,813.79. The undisputed safe haven has risen 11 percent so far this month and is up 27 percent in 2011.
Three-month copper on the London Metal Exchange rose 3.1 percent to $8,865 a tonne, after losing 1.6 percent in the last session.
Oil futures fell, with U.S. crude for September delivery down 0.3 percent to $82.62 a barrel, though well off Tuesday's intraday low of $75.71.
Reuters
