European Markets Take 2.5% Drop in China Stocks as Positive Sign

European stocks rose and the yen weakened as investors took solace that the resumption of trading in Chinese equities failed to spark a deeper selloff. All but two of the 19 industry groups in the Stoxx Europe 600 Index advanced as China s central bank chief said the rout in shares was close to ending. Commodity producers led gains as Glencore Plc s plan to restructure boosted the stock and lifted copper. Prospects for higher U.S. interest rates that are plaguing emerging markets sent a gauge of 20 currencies lower for a fifth day.

While most mainland stocks rose Monday, declines among the large firms normally targeted for state buying dragged the Shanghai Composite Index 2.5 percent lower at the close. People s Bank of China Governor Zhou Xiaochuan sought to reassure investors over the weekend, saying in a statement that intervention had stopped the free fall in equities. Emerging markets remained under pressure after Friday s U.S. payrolls report failed to provide clarity on the timing of Federal Reserve interest-rate increases.

We did have some reassurance from the Chinese authorities over the weekend that this could be more or less the end of the rout, said Jane Foley, a senior currency strategist at Rabobank International in London. But clearly the market is still very fragile as we re staring directly at the next Fed meeting.

Stocks

Stocks advanced after Chinese officials sought to shore up confidence at a gathering of Group of 20 finance chiefs amid growing concern over the health of the world s second-biggest economy. China s 2014 economic growth was revised lower by 0.1 percentage point to 7.3 percent, the National Bureau of Statistics said on Monday. The country s foreign-exchange reserves fell by a record $93.9 billion to $3.56 trillion last month as the central bank sold dollars to support the yuan after the biggest devaluation in two decades spurred bets on continued weakness.

The Stoxx 600 Index advanced 0.4 percent at 8:46 a.m. in New York, after gaining as much as 1.2 percent. Futures on the Standard & Poor s 500 Index climbed 0.5 percent, with U.S. markets closed for a holiday. Glencore jumped 6.5 percent after saying it plans to sell assets and shares to cut its net debt by about a third. Euro-denominated bonds sold by the company surged to the highest in two weeks, with its 1.25 billion euros ($1.4 billion) of securities due March 2021 rising 4.04 cents on the euro to 91.97 cents, according to data compiled by Bloomberg. The cost of insuring its senior debt against default fell to 334 basis points on Monday, from a more than three-year high of 445 basis points, according to data provider CMA.

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Emerging Markets

The MSCI Emerging Markets Index declined for a second day toward a two-week low, sliding 1.3 percent. Malaysia s ringgit sank 1.6 percent versus the dollar and South Korea s won fell below 1,200 per dollar for the first time since 2011. More than two shares rose for everyone that fell in the Shanghai Composite Index after a two-day holiday. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong slipped 0.7 percent.

The lira slid to a record low and stocks dropped as concern deepened over Turkey s security after Kurdish separatists killed soldiers in a roadside bomb attack Sunday. The currency weakened as much as much a 1.3 percent to 3.0465 per dollar before trading 0.6 percent lower.

(For more news on emerging markets, see: TOP EM.)

Commodities

Copper led the advance in metals, gaining 1.2 percent. Glencore said it had suspended copper production at its Katanga operation in the Democratic Republic of Congo and its Mopani project in Zambia for 18 months. The suspension will remove about 400,000 metric tons of copper cathode from the market. West Texas Intermediate oil slipped as much as 2 percent, putting it on course for the first back-to-back decline in two weeks on speculation that OPEC will fail to stabilize prices amid a global oversupply and concern Chinese demand is weakening.

Producers from outside the Organization of Petroleum Exporting Countries including Russia should be invited to a meeting aimed at achieving price stability, Venezuelan President Nicolas Maduro told state-owned broadcaster Telesur. Brent dropped 1.4 percent to $48.93 a barrel in London.

(For more news on commodities, see: TOP CMD.)

Currencies

The yen weakened for the first time in three days, dropping 0.3 percent to 119.39 per dollar. The euro was little changed at $1.1146 and the Australian dollar climbed 0.4 percent to 69.37 U.S. cents. Britain s pound was the biggest gainer among developed markets, jumping 0.6 percent to $1.5264 as investors looked forward to the Bank of England s monetary-policy decision later in the week. The gain ended a nine-day slump that had coincided with speculators reversing bullish bets on the U.K.

currency.

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Bonds

Ten-year Treasury futures contracts fell 7/32 to 127 16/32 amid reduced demand for haven assets and as data showed China s foreign-exchange reserves fell by a record last month. Spain s 10-year bond yield rose five basis points to 2.13 percent. The cost of insuring investment-grade corporate debt fell for the third time in four days. The Markit iTraxx Europe Index, which tracks credit-default swaps on investment-grade companies, dropped one basis point to 72 basis points. The non-investment grade Markit iTraxx Europe Crossover Indexdeclined three basis points to 336 basis points.

(For more news on currencies, see: TOP FX.)

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